Stocktake

iPhone could make or break Apple: MANY saw last week's iPhone 5 announcement as overhyped. To Apple, however, the stakes could not be higher. Its stock has risen eightfold since the iPhone's introduction in 2007.

It accounted for 48 per cent of revenues last year and is projected to account for 55 per cent of revenues by 2014. Also, the iPhone enjoyed gross margins of 49-58 per cent from 2010-2012, compared to 23-32 per cent for the iPad. Those fat margins mean it may account for up to two-thirds of Apple’s profits.

JP Morgan recently upped estimates from 147 million sales in 2013 to 168 million, but Morgan Stanley reckons sales could hit 266 million. Upside sales surprises could drive shares much higher, but the stock could come under pressure if iPhone flops. It is, as one analyst put it, Apple’s make-or-break product.

Miscellaneous iPhone facts

Six weeks ago, Stocktake noted that Apple shares tend to run up significantly in advance of major iPhone announcements. Shares are up 20 per cent since then. The aftermath? A “sell the news” reaction, according to Morgan Stanley, with the stock falling an average of 3.6 per cent in the week following the past four iPhone announcements. Within six months, however, shares averaged a 12 per cent advance, and 30 per cent within 12 months.

This will be the fastest ever iPhone roll-out. It will be for sale in 100 different countries – including, crucially, China – across 240 of its 250 carriers by December.

JP Morgan estimates iPhone 5 sales could add up to 0.5 per cent to US GDP.

Easing does it for the Federal Reserve

MARKETS soared after the Fed announced a third bout of quantitative easing. QE3 is different in two key respects. One, it’s potentially unlimited – instead of a defined amount of bond purchases, the Fed is committing itself to as much easing as is necessary.

Two, QE has followed heavy market falls in the past – “now, it appears we’ll receive it with SP up 14 per cent”, noted Goldman Sachs. It was, as another analyst quipped, an “I’m gonna ease till your eyes bleed kinda statement”. Markets loved it. “Don’t fight the Fed . . . regardless of fundamentals” should be the bumper sticker for this market”, said manager Charles Gradante.

Investors miss out as market rallies

INVESTORS have been wrong-footed by the rally. In the US, index investors are up 14 per cent this year, compared to 7 per cent for large-cap managed funds and 3 per cent for stock-oriented hedge funds. Earlier this summer, cash levels among global fund managers hit 5.3 per cent, the third-highest on record. The euro was in free fall, as were European indices.

Since June, the Greek index is up over 60 per cent. Spain and Italy are the most technically overbought indices in the world, both more than 15 per cent above their 50-day moving averages.

And the euro, incredibly, is now flat for the year against the dollar. Markets don’t always rally on good news – not if it’s been priced in. In the above cases, investors just didn’t see it coming.

China pours scorn on short selling

SHORT-sellers get a bad rap but Chinese authorities are scornful of those who bet on declining share prices. “Applaud Chinese entrepreneurs for uniting against short-sellers”, headlined State-controlled press agency Xinhua recently. Worryingly, Canada’s Globe and Mail has reported that Chinese authorities interrogated a Canadian citizen, Huang Kun, after he helped compile a critical report into Silvercorp, a US-listed company with mines in China. Huang has been prevented from leaving China for over eight months, and his lawyer expects him to be charged with “disseminating false facts to impair another person’s commercial reputation”.