China was a big success for Apple Inc. (NASDAQ:AAPL) in the first quarter. As per the IDC report, the company became the leading Smartphone seller in the Chinese market, with 14.7% share. The strong growth can be attributed to company’s strong association with China Mobile Ltd. (ADR)(NYSE:CHL), its robust brand image, and the popular iPhone 6 models.
A report from Market Realist stated that Apple’s revenue propelled at a 71% annual rate in Taiwan, Macao, Hong Kong and China. All these data clearly indicates that the company depends substantially on the Chinese market to support its growth. Does it mean that the free fall in China’s stock market can hurt Apple’s growth? Well, the answer is yes.
The growth in China
Analyzing the current conditions, it is evident that Apple is highly dependent on China for growth. Till this time, the Chinese stock market has eroded nearly $3.2 trillion in value, which is nearly a third of its total value since June 12, 2015. This sharp decline comes as a warning as the Chinese market is heavily dependent on more than ninety million individual investors who have borrowed ample funds to invest in the stock.
For the record, these 90 million investors accounts for almost 80% of total trading. Also, as per the general rule what gains with leverage also decline with leverage. So, the decline in China’s stock market is putting pressure on these investors to pay back the debt they borrowed to buy the stock. This pressure indicates that a large percentage of potential iPhone buyers will not have enough cash to pay Apple for a new Smartphone.
Instead, they will look for more affordable options to replace Apple Inc. (NASDAQ:AAPL) products and save money. The tech giant could potentially lose market share in one of the most rapidly surging markets, and eventually it might hurt company’s future growth.