The world’s technology bellwether – the global proxy for growth – reported a 23% fall in profits and a 13% fall in first quarter revenues. Selling fewer phones, making lower profits… none of that is good. Not for Apple. Not for technology stocks. Not for growth stocks. Not even for China.
Apple’s CEO Tim Cook said the company faced “strong macroeconomic headwinds.” He means China, most likely. And he wouldn’t be wrong. The broadest measure of credit in China is “social financing”. That’s bank and non-bank lending plus corporate and government borrowing. It grew by 15.4% in March, which means nothing by itself.
But in the context of GDP, it’s alarming. Total social financing in China is now $22.4 trillion – twice that of GDP, which is $10.4 trillion. Corporate debt issuance was $107.5 billion in March, according to the Wall Street Journal. That puts Chinese corporate debt at 160% of GDP, compared to 70% in the US.
Debt, debt and more debt. That’s the problem. It’s how Apple and China are connected. A world burdened by so much debt will find it hard to grow. If there isn’t enough growth to generate income to pay interest on the debt, then you have an even bigger problem. If the borrowed money isn’t put to productive use – producing assets, incomes, jobs and wages – it’s a dead weight.
This is the first time in 13 years that Apple has reported a decline in quarterly revenues. That doesn’t sound like an anomaly. It sounds like the end of a growth era.
On the other hand, value is cheap. In fact, value hasn’t been this cheap relative to growth since the last time growth peaked in the late 1990s. Is value about to stage a massive comeback?
Category: Investing in Technology