Apple led the decline in technology shares last night as the company slashed its revenue guidance on sluggish demand for its iPhone products, especially in the Greater China markets.
It also suggests that Apple’s strategy to increase the price of iPhone to offset the declining of unit sale does not work. Consumers simply walk away and buy other brands at more affordable price.
Apple’s revenue warning led to broad decline in US indices with all three major indices falling around 2.5-3% overnight. Investors are increasingly concerned about the magnitude of slowdown in consumer spending in Greater China markets, especially on luxury goods from overseas. The trade war impact has likely started to erode into US corporate earnings during the holiday season, and Trump’s trade tariffs on China may prove to have backfired.
In Asia, the entire Apple’s supplier chain was impacted, including South Korean’s Samsung Electronics and SK Hynix, Taiwan’s Hon Hai Precision Industry, Taiwan Semiconductor Manufacturing and HK listed Sunny Optical, etc. In Singapore, Venture Corp and UMS extended losses as Apple’s revenue cut guidance weigh on overall sentiment of technology and semiconductor segments.
In the US markets, many multi-national companies have also highlighted slowing revenue growth in China markets, such as FedEx, Starbucks, luxury jewellery company Tiffany & Co. and automotive manufacturer Daimler, etc.
Those companies see a “clear pattern” of Chinese shoppers cutting back on spending when they are overseas, particularly after the trade war. There are three main reasons behind this – slower economic growth, weaker Yuan and tighter border checks on goods that travellers try to bring back to mainland in order to spur domestic spending. Another thing is the rising nationalism among Chinese consumers, who simply abandon iPhone and luxury US goods and turn to support domestic products in a trade war.
Singapore’s PMI fell for a fourth straight month in December 2018, which is in line with a broader slowdown in manufacturing activities seen in China and Europe, as we are off the peak of a cyclical upswing and global demand is clearly slowing down. The cyclical sector such as semiconductors and electronics got bulk of the hit, and this sector has already entered contractor territory. Overall PMI was underpinned by pharmaceutical and biomedical cluster, which is less vulnerable against cyclical headwinds.
Overall sentiment remains ‘risk-off’, and defensive sectors such as food, REITs and consumer staples are likely to continue outperforming the cyclical ones like technology, financials and industrials.