After taking a comprehensive look at global trade changes, JPMorgan strategists concluded that some of Apple’s Chinese suppliers may benefit from the trend of supply chain diversification. The report on October 18 examined “the great migration of supply chains and the rise of trading groups” from 10 aspects. The analysis ranges from China’s dominance of global supply chains and overcapacity concerns to U.S. policy. Tensions in U.S.-China relations and talk of “decoupling” emerged during Donald Trump’s first presidential term. Calls for supply chain diversification have increased during the Covid-19 pandemic. Republican candidate Trump has threatened to impose 60% tariffs on China if he is re-elected as president next month. JP Morgan analysts said Democratic candidate Kamala Harris is expected to maintain the Biden administration’s tough stance on Chinese technology and call for high-end manufacturing to return to the United States. “Tariff War 2.0 may also accelerate the pace of global supply chain migration.” . “Our Emerging Markets Equity Strategy team has focused on a number of MSCI Emerging Markets companies (from India, ASEAN and Mexico) that may be potential beneficiaries of supply chain migration and manufacturing growth in their respective markets,” the report said. In addition, they also highlighted companies that may benefit from Apple’s supply chain relocation. “Apple plans to increase iPhone production in India, while some of its Chinese suppliers have invested in building factories overseas.” Analysts’ list of beneficiaries of supply chain diversification includes three companies listed in mainland China: Wingtech Technology, Luxshare Precision Industries and Goertek. JP Morgan gave Wingtech and Luxshare Precision an overweight rating, while Goertek gave Goertek a neutral rating. The three companies already produce in many parts of the world outside of China, according to their websites. Apple’s latest supplier list shows that the company is sourcing from GoerTek and Luxshare Precision in Vietnam and China. Last year’s supplier list showed that Apple purchased products from Wingtech’s factories in Malaysia and the Philippines. The latest version lists only Wingtech’s Chinese operations. Other Chinese suppliers are also joining their customers in expanding operations overseas. Shenzhen-based smartphone company Oppo said that when it opened a factory in Indonesia, it also helped about 10 suppliers move there. In a report this month on the development of China’s global manufacturing industry, Bernstein analysts said that overseas revenue of Chinese companies has continued to grow in the past few years, with corporate portfolios with higher exposure to overseas sales generating 9.5% from 2019 to 2023. annualized alpha. Analysts said: “We believe that as Chinese companies go global and leverage their low-cost, high-quality product strategies overseas, this will become the main source of returns for investors in the future.” Apple supplier Luxshare Precision is also their first choice one. Bernstein has an outperform rating on the stock, with a price target of 50 yuan ($7.02), 15% above Friday’s closing price. Bernstein analysts said that Luxshare Precision “has a sizeable factory in Vietnam that is engaged in the assembly of Apple wearable devices and non-Apple businesses. Overseas production capacity accounts for about 25% of Luxshare Precision’s overall production capacity.” However, when it comes to Apple’s iPhone, Bernstein analysts are not optimistic that India can become a viable alternative to China. They expect Luxshare Precision to gain share of China’s smartphone assembly market. Apple is scheduled to release quarterly results on October 31.
