Crunch! US stocks took another hit last night. You know the reason already — Apple downgraded its earnings for the quarter.
Investors are jittery. Any sign of weakness and we all get spooked. The Dow Jones was down over 2%. The volatility continues.
The reason Apple was sold down? Lower iPhone revenue, primarily from China.
The question is whether it tells us more about China and global growth or the company.
My money is on it being Apple’s problem…
You see, Apple may be the star of the show here in Australia.
But Apple has struggled in China. It’s a very competitive market. Chinese home-grown brands like Huawei make smartphones too, and at a lower price point.
This is already in the numbers. Apple is only the fifth highest selling brand in China.
The top four are all Chinese.
Apple phones carry premium pricing. That strategy is not working in China. One suggestion is that it could be because of the WeChat app.
This makes the iOS operating system less important to users — and drags down the value of having an iPhone.
Donald Trump’s rhetoric against China probably isn’t helping American brands much, either.
Regardless, the main point for today is that I think this downgrade is less about China’s economy and more about consumer tastes.
Now, it’s true that recent data shows Chinese manufacturing contracted in December. But a Chinese slowdown has been taken for granted for a long time now.
It would take a severely bad Chinese outlook to drag markets down further — based off this alone.
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The opposite is more likely. Here’s why…
China: A surprise looms in 2019
It’s called the Chinese central bank.
The Wall Street Journal reports that the People’s Bank of China is making it easier for Chinese banks to lend to small businesses.
The crackdown on the so-called ‘shadow banks’ appears to have choked off a lot of credit to the private sector.
Since this is the engine of growth in any economy, that’s part of the Chinese slowdown.
We’re seeing a similar effect in the Australian property market right now.
The central bank is trying to turn this around. And unlike the useless bureaucrats who run the Australian system, it’s using measures likely to work.
That’s not all…
China also cut import duties last year and is due to cut income taxes this year as well.
This is going to put more money into the pocket of the Chinese consumer.
It may not happen tomorrow, or even next week, but at some point these moves seem likely to show up in higher sales and rebounding domestic economy.
One other thing: China permitted US rice imports in late December.
This suggests China is trying to appease the Trump administration before trade talks resume shortly.
China was part of 2018’s difficult market. It may surprise everyone by helping to lift things back up this year.
It may seem unlikely now.
May I remind you that at this time last year, I was in the same office…except the US market was coasting into all-time new highs after a stonking 2017 where volatility all but disappeared.
Markets can change quickly — usually in ways we least expect.
Turn it to your advantage. The poor sentiment at the moment is dragging down valuations all over the place.
Here’s something to help with that.
2018 revealed something that will seem incredible if you do nothing but consume media headlines.
It was this: The world has never been better…
The next 10 years are the most exciting in history
Yep. Sorry doomsters and permabears. You can crap on about useless government statistics like GDP as long as you like.
Here’s what counts: The number of people living in extreme poverty is down to a new low, and will keep going in that direction.
More households are moving into a ‘middle class’ standard of living, which gives them access to basic luxuries like air conditioning, movies and motorbikes.
More diseases are treatable and health outcomes are improving.
We can thank the growth of markets and free trade for this.
A lot of reduction in poverty, for example, is thanks to China since 1978. That’s when it left socialism behind and embraced (again) a market economy.
Next on the agenda is to lift India up in the same way, if they can get it done.
Why anyone would stay bearish on the outlook for the world over the next decade or so is a mystery to me.
We have the two most populous nations in the world expanding at the same time that technological marvels keep appearing.
Hello! China just landed a probe on the dark side of the moon and want to start building a base there within 10 years.
What an exciting time to be alive.
All the best,