Earlier this morning, Josh Brown, my friend and star of Fast Money Halftime Report, tweeted the following:
Sales to China represents only 5% of all S&P 500 revenue. And it’s like 2% of the EuroStoxx 50. NBD. pic.twitter.com/5eLYESVBTw
— Downtown Josh Brown (@ReformedBroker) August 13, 2015
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:
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.