Photo: Goldman Sachs
Jim O’Neill, Chairman of Goldman Sachs Asset Management, was in the U.S. last week to host GSAM’s second Growth Markets Summit.The purpose of the summit was to pitch the BRICs (i.e. Brazil, Russia, India, and China) and other growth markets (e.g. Indonesia, Korea, Mexico, Turkey) to clients.
But Apple’s extraordinary earnings announcement wasn’t something anyone could ignore.
From this weeks’ Viewpoints:
Literally an hour before the opening dinner, Apple released its Q1 earnings and it was a blockbuster. Even I, as socalled Mr. BRIC, was blown away by their staggering sales to China. Is there anyone out there that still believes the Chinese consumer isn’t important? It became my obsession of the week. In Chicago, I had a number of group meetings and in each of my meetings, I asked the audience how many owned Apple stock. Three of the meetings had quite large numbers, and the answers varied, but it was usually at least 20 pct. In one meeting, it was closer to a third.
I followed up that question with another, “how many of you realised you were making a bet on the Chinese consumer?” The answers to that were very small. But that is what it was in Q1. 20 per cent of the company’s astonishing revenues now come from China. It is literally fantastic. The company’s own statement alluded to the remarkable opportunity afforded by the Chinese consumer, and suggested many others could benefit dramatically too.
Apple’s announcement provided more evidence that China’s economy was finally shifting from being export-driven to being consumer-driven, which many experts believe is crucial for long-term growth in the world’s second largest economy.
China’s long-term growth prospects are extremely promising. And the companies who can establish a footprint there will be raking in the rewards for years to come.
In much of the market and media discussion I followed last week about Apple’s future and its value, not surprisingly, many worry that they may end up with the same fate that came across other past market champions and one can see why. The challenge of sustaining this degree of growth is not easy. But if you look at Apple in the context of the Goldman Sachs 2050 scenarios for China and their consumer, the potential sales are multiples are what they are today. And, if the brand can stay fashionable, wow.
But it’s not just about Apple. Apple’s earnings should serve as a reminder of how big the opportunity is in China. On that matter, U.S. leaders should be cautious on how they manage that extremely lucrative, yet fragile relationship.
As I said at the conference and to virtually anyone I met in the US, I can only hope that someone in Washington close to both Presidential hopefuls paid attention to those results. After this, I can’t quite see how any US political figure can seriously contemplate trade sanctions and accuse China of unfair trade behaviour and persist with – in my view, increasingly irrelevant – exchange rate issues.