After a comprehensive look at global trade shifts, JP Morgan strategists concluded that some of Apple's Chinese suppliers could benefit from the trend of supply chain diversification. The October 18 report looked at 10 aspects of “the great supply chain shift and the rise of trading blocs.” The analysis ranged from China's dominance of the global supply chain to concerns about excess capacity and US policy. Tensions between the US and China and talk of “decoupling” emerged during Donald Trump’s first term as president. Calls for supply chain diversification have increased during the COVID-19 pandemic. Republican candidate Trump threatened to impose 60% tariffs on China if he is re-elected as president next month. Democratic nominee Kamala Harris is expected to maintain the Biden administration's tough stance on Chinese technology and call for the return of advanced manufacturing to the United States. “Tariff War 2.0 is likely to accelerate the pace of global supply chain relocation,” JPMorgan analysts said. . “Our Emerging Markets Equity Strategy team highlights some MSCI Emerging Markets companies (from India, ASEAN and Mexico), which could be potential beneficiaries of supply chain relocation and manufacturing sector growth in the respective markets,” the report said. “Furthermore, they highlight names that could benefit from Apple's supply chain relocation,” the report said. Apple plans to increase iPhone production in India, while some of its Chinese suppliers have invested in factories abroad. Analysts' list of those benefiting from supply chain diversification included three names traded in mainland China: Wingtech Technology, Luxshare Precision Industry, and GoerTek. JPMorgan rates Wingtech and Luxshare Overweight, while Neutral on GoerTek. The three companies already manufacture in many parts of the world outside China, according to their websites. Apple's latest supplier list shows that the company buys from GoerTek and Luxshare in Vietnam as well as China. A list of suppliers from the previous year showed that Apple purchased from Wingtech's factories in Malaysia and the Philippines. The latest version only listed Wingtech's operations in China. Other Chinese suppliers have expanded their business abroad with their customers. Shenzhen-based smartphone maker Oppo said that when it opened its factory in Indonesia, it helped about 10 of its suppliers move there as well. Overseas revenues of Chinese companies have grown over the past few years, and a group of companies with high exposure to overseas sales achieved 9.5% alpha annually from 2019 to 2023, Bernstein analysts said in their report this month on China's global manufacturing development. “We believe this will be a major source of return for investors in the future as Chinese companies go global and leverage their low-cost, high-quality product strategy outside of China,” the analysts said. Apple resource Luxshare is also one of their top picks. Bernstein rates the stock outperform with a price target of 50 yuan ($7.02), 15% above the shares' closing price on Friday. Luxshare “has a large site in Vietnam involved in wearables assembly and non-Apple businesses. The overseas capacity represents about 25% of Luxshare's total capacity,” Bernstein analysts said. As for Apple's iPhone, Bernstein analysts are less optimistic that India can become a viable alternative to China. They expect Luxshare to gain a stake in smartphone assembly in China. Apple is scheduled to release quarterly results on October 31. — CNBC's Michael Bloom contributed to this report.
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Apple's suppliers in China could benefit from US trade tensions
