Wealthy Nations Daily Update - Technology Companies

In the present era one might expect to pay a hefty premium to invest in technology companies, especially market leading household names such as Apple and Alibaba; each flagship innovators and consumer gravitons in their respective superpower nations. However bonds from both of these, over the course of the past 11 months, have seemed to offer relative value according to our models; Alibaba when they first issued in November last year (and more so following the negative China and EM sentiment in Q2) and Apple after their 2043 issue fell from a price of USD 108.7 in late January to May when we picked some up at USD 91.8.

Following stellar earnings releases yesterday from the both of these companies Apple is now trading back around USD 96.0 and Alibaba around USD 97.6. Apple sold over 48 million iPhones over the last quarter equivalent to 6 iPhones every second and with forecasts sales of USD 75.5-77.5bn for the present quarter those cash registers are set to keep ringing at a similar rate. Alibaba likewise beat analysts’ expectations with sales of USD 3.5bn and gross merchandise volume (value of transactions made across their platform) of USD 112bn up 28% YoY.

On top of reinforcing their respective brands these results are also another strong signal for the ongoing consumer growth in China. Apple CEO Tim Cook emphasised sales growth in China as one of the main drivers of performance. Nearly a quarter of Apple’s total revenue is now from China and at USD12.5bn it’s also nearly doubled YoY. China is arguably the world’s most important market for smartphones and Apple now has 25 stores in China (out of around 500 globally) with a new one opening approximately every month.

We’re always keen to reiterate that we are buyers of value bonds within the remit of wealthy nations and our investment process can lead us to conduct analysis on a wide range of issuers. Sometimes it is a Norwegian export company with a misunderstood government developments or an out of favour but innately affluent Middle Eastern Sovereign Wealth Fund, and sometimes it’s a 40 year old tech giant on whose products many of you will be reading this daily.

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