While much of the world celebrates Earth Day, Apple investors should be cheering the massive smog clouds over China, according to Morgan Stanley. | Image: AP Photo/Ng Han Guan
- Morgan Stanley believes Apple stock is looking bullish as China slowly recovers from a coronavirus-induced lockdown.
- The sudden deterioration in China’s air quality suggests industrial production is ramping up again–and that includes Apple’s factories across the mainland.
- Apple’s share price rose more than 3% Wednesday but continues to trade well below its February peak.
On a day when much of the world was celebrating Earth Day, Apple (NASDAQ:AAPL) investors should be rejoicing at the sudden deterioration in China’s air quality.
According to Morgan Stanley, the massive smog clouds engulfing the country is a bullish sign that Apple’s factories are humming again as China’s post-coronavirus recovery begins.
Chinese Pollution Is Bullish for Apple
If Chinese industrial production is a bellwether for Apple’s performance, then now is the time to start loading up on AAPL shares, according to Morgan Stanley.
On Wednesday, the U.S. investment bank issued a buy rating for Apple stock on the premise that Chinese factors are ramping up again.
As CNBC reports, the bank monitors nitrogen dioxide levels in China’s air quality and considers it to be a first-level indicator of factory output.
Mainland China witnessed a massive drop in air pollution after the coronavirus pandemic put the economy on lockdown. | Image: The Verge
In a note to clients, equity analyst Katy Huberty said:
Air quality data from 4 major Chinese manufacturing locations suggests that device production remains above seasonal levels which combined with build forecasts that are above our forecast point to potential for better than expected F3Q guidance
Based on nitrogen dioxide levels, Chinese industrial production is back above average, according to Morgan Stanley, which puts Apple on track to exceed its second-quarter guidance for 32.9 million iPhone shipments. If production ramps up as expected, the iPhone maker could be on pace to exceed third-quarter guidance as well.
Apple’s China Problem
To say that Apple’s performance is tied to China would be an understatement. With a dozen Foxconn factories in the country, Apple was one of the first companies impacted by the coronavirus pandemic as it spread rapidly from its Wuhan epicenter.
Long sensitive to supply disruptions in China, Apple warned in February that the coronavirus would derail its short-term outlook. As Beijing tried to contain the novel disease, Apple slashed its sales expectations for the quarter and warned of a sharp drop in demand.
The Chinese economy suffered a dramatic collapse in the first quarter as a nationwide lockdown obliterated factory production, consumer spending, and asset investment. Industrial output in January-February collapsed 13.5% annually, the most significant drop in 30 years.
China would go on to record its first-ever contraction in quarterly GDP since Bejing began releasing the data set in 1992.
The International Monetary Fund expects China’s economy to grow just 1.2% in 2020 before rebounding in 2021. Even with the IMF’s projected 9.2% rebound in 2021, China will need a few years to recoup this year’s losses.
Apple Stock Rallies
Apple’s share price rallied sharply on Wednesday, reflecting broad gains in the Dow Jones Industrial Average.
At its peak, AAPL traded at $277.58 for an increase of 3.4%. It settled up 2.9% at $276.10.
Apple’s stock price is up more than 3% on Wednesday for a market cap of roughly $1.2 trillion. The iPhone maker is down 16% from its February peak. | Chart: Yahoo Finance
Despite its rally, Apple’s stock remains more than 16% off its February peak when it closed as high as $327.85.
Following back-to-back sharp declines, the Dow 30 index rose 456.94 points, or 2%, to 23,475.82. The S&P 500 Index climbed 2.3% to close at 2,799.31. The technology-focused Nasdaq Composite Index advanced 2.8% to 8,495.38.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment advice from CCN.com. The author holds no investment position in the above securities.
This article was edited by Josiah Wilmoth.
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Last modified: April 22, 2020 8:09 PM UTC