MorningWord 8/13/15: China Syndrome $AAPL

by Dan August 13, 2015 9:40 am • Commentary

Earlier this morning, Josh Brown, my friend and star of Fast Money Halftime Report, tweeted the following:

This is true. But the S&P 500 is 500 stocks, and it’s true that it’s no big deal for most. But it’s a huge deal for some. Apple for example, in its latest quarter reported it had over 100% growth year over year in sales in China, but saw a 21% drop in sales on a sequential basis for its sales in China (the largest of any region in the globe) and sales in China represented 26% of their total sales:

From Apple
From Apple

For companies like AAPL (the largest market cap company in the world, in the top 20 of total sales in the world and the largest weighted company in the S&P 500), China sales are a very big deal, because the successes or failures in the country will determine the trajectory of the stock in the coming years.

Last week, Business Insider summarized a report from Goldman Sachs strategist David Kostin whose team highlighted the biggest themes from Q2 earnings season. The number one being China:

Theme 1: Earnings at risk from Chinese slowdown
Slowing economic activity in China was cited as a near-term risk to earnings across most sectors. Industrial and commodity-linked industries were particularly focused on slowing Chinese economic activity. However, managements made note of their positive medium-term outlook for the country.

So yes, overall, most companies on the planet are not at risk directly when China devalues its currency or if there’s a slowdown there in general. But enough big multi nationals are effected that it poses a risk for a global slowdown. China is the low hanging fruit in growth plans for many of these companies and when that math changes there are ramifications back home.