Apple and others to benefit from China’s reopening, Morgan Stanley says
There is a trading opportunity in stocks with a lot of exposure to China’s economic reopening, even as companies grapple with an impending earnings downturn at home, according to Mike Wilson, chief U.S. equity strategist at Morgan Stanley. “China reopening could be a positive catalyst for some companies with high revenue exposure but tailwinds from the region will not be large enough to offset the looming earnings problems facing U.S. companies,” Wilson said in a note on Monday. U.S. companies earn an estimated 4% of their aggregate revenue in China, with the median company in Morgan Stanley’s coverage deriving no revenue there, according to the bank’s note. But Wilson said that investors may still benefit from Beijing’s reopening by choosing stocks and industry groups with high revenue exposure to China. Here are three of Morgan Stanley’s China reopening stock picks: Apple China accounts for approximate 20% of Apple ‘s revenue and a staggering 95% of its production. Covid lockdowns created enormous challenges from a supply standpoint, most recently to iPhone 14 Pro/Pro Max production in December. “While a reopening and initial spread of Covid infections could cause near-term disruption, we ultimately believe a relaxing of restrictions should be a positive for production,” Wilson wrote. Nike The footwear and apparel maker “would likely be the biggest beneficiary in our U.S. Branded Apparel & Footwear coverage from a broad China reopening,” Wilson said. Underscoring this is the fact that China has been a “key driver” for Nike’ s revenue and gross sales in the last five years, and is expected to account for 15% of Nike’s total sales in the 2023 fiscal year ending May 31. Las Vegas Sands The casino and resort company is the largest operator in Macau. Las Vegas Sands has seen visitation drop more than 80% from pre-Covid levels due to travel restrictions, according to Morgan Stanley. But relaxed testing requirements, relaunched group trips and resumed ferry services to and from Hong Kong are expected to fuel a rebound in visits to the former Portuguese enclave. — CNBC’s Michael Bloom contributed to this report.
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