Apple’s bet on India is seismic

By Peter Garnry, Head of Equity Strategy at Saxo

Apple announced yesterday that it will manufacture a portion of its iPhone 14 in India signalling a shift in its supply chain structure. Apple has previously depended on China but with the tensions between the US and China, and the recent US CHIPS Act the US government is telling US companies to reduce their exposure to China. During the Trump period US companies adopted a China + 1 strategy which meant most of production in China and a little in some other country, often in Vietnam. With the war in Ukraine and sanctions against Russia, multinational companies are rethinking their supply chains and the associated risks.

These considerations combined with the many lockdowns in China due to Covid are causing companies to move manufacturing to India, Vietnam, and Indonesia. This trend leans well into an FT article yesterday by Ruchir Sharma on the so-called seven economic wonders of a worried world highlighting that the seven countries Japan, Vietnam, India, Indonesia, Saudi Arabia, Greece, and Portugal are all doing much better than the rest in terms of inflation and stock market performance.

In any case, we have long talked about India as one of the biggest beneficiaries of the rivalry between the US and China, and the equity market is constantly valuing the India equity market at the highest earnings multiples of any country in emerging markets reflecting the high expectations. Among our equity theme baskets our India theme basket is the fourth best performing basket this year down only 11.4% compared to a decline of 24.5% for the MSCI World. Another theme basket which we expect to benefit from this outsourcing of production from China is the logistics industry because the change in supply chains will make them more complex and fragmented which will benefit profitability longer term for the industry.

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