Markets

Apple shares jump after US and China declare truce in trade war

Shares in Apple could add as much as $25 as a result of thaw in trade dispute, according to a new research note

Customers walk past an Apple logo inside of an Apple store at Grand Central Station in New York. Photograph: REUTERS/Lucas Jackson/File Photo

Mon Jul 1 2019 - 18:00

Apple Inc jumped the most in three weeks after the US and China declared a trade truce over the weekend, relieving the iPhone maker of some of the pressure its growth outlook faces in the event of a prolonged conflict.

The shares gained as much as 3.3 per cent, contributing the most to a rally that’s pushing the SandP 500 Information Technology Index toward a record high. Apple is bouncing back from a drop of as much as 18 per cent after the latest flareup in early May.

The company is particularly vulnerable to US-China tensions as it is heavily dependent on the Asian nation for manufacturing as well as sales of its products.

The trade truce removes "the albatross" that has been around Apple chief executive Tim Cook's neck, and the shares could add as much as $25 (€22.13) as a result, Wedbush analyst Dan Ives wrote in a research note.

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Based on Apple’s Friday close, such a gain would return the company’s market valuation back above $1 trillion.

“With the positive step in the right direction announced between the two countries to not levy additional tariffs while negotiations continue, in essence this takes away the biggest risk on the Apple story (for now) in our opinion,” Ives wrote. He rates Apple outperform with a $235 price target.

Headwind

The trade issue has been a headwind for Apple given its heavy exposure to China. According to data compiled by Bloomberg, nearly 20 per cent of its 2018 revenue came from the country, and China is also a critical part of its supply chain.

Over the weekend, President Donald Trump said would hold off imposing an additional $300 billion in tariffs and the world's two largest economies agreed to resume negotiations.

“We view this as a positive development which will help Apple keep prices unchanged and will delay an immediate need to shift manufacturing and supply chain out of China,” wrote BofAML analyst Wamsi Mohan. The new tariffs “would have impacted almost all of Apple’s products, including the iPhone.” Mohan recently calculated that had the 25% tariffs been enacted, that could have reduced Apple’s earnings by about 15%.

BofAML affirmed its buy rating and $230 price target on Apple shares, but warned that the company’s app store in China had showed “significant deceleration” in June. - Bloomberg

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