By now, you’ve probably heard about the riots at Apple (NASDAQ:AAPL) supplier Foxconn. The site’s facility in China apparently was the flashpoint of a fight that involved as many as 1,000 and resulted in the shutdown of the facility, according to reports.
Investors must let the news cycle play its course, but there are two big questions that traders have to ask themselves:
- What does this mean for Apple stock?
- What does this mean in the greater scheme of China’s economic and political future?
The first question is perhaps the most urgent: What will the effect be on Apple’s share price? The company was at an all-time high above $700 last week on enthusiasm over the iPhone 5, and any reduction in output is sure to damage the bottom line.
Of course, the initial shipments already have been packed up and stocked at merchants — including stores that serve AT&T (NYSE:T), Sprint (NYSE:S) and Verizon (NYSE:VZ) customers, as well as some retailers like Wal-Mart (NYSE:WMT). So you can be sure that the first wave of sales will be filled, no problem.
And as history shows, that first push is the most important. Apple sold 2 million iPhone 5 models in the first 24 hours of preorders, so you can bet Apple was prepared for that kind of demand with initial shipments, or else the launch would be a disaster.
Longer-term, time will tell how much damage has been done to the Apple brand or supply chain. If the riots fade away — with 5,000 Chinese police called in to help push things along — then it shouldn’t have a lasting impact on Apple stock despite shares trading down slightly this morning. But if events at Foxconn continue as some broader protest against worker conditions, it could be disastrous.
Take this, from the New York Times:
“Disturbances at factories have become increasingly common in China, rights groups say, as laborers have begun to demand higher pay and better conditions.
Geoffrey Crothall, spokesman for the China Labor Bulletin, a nonprofit advocacy group in Hong Kong seeking collective bargaining and other protections for workers in mainland China, said workers in China had become increasingly emboldened.
‘They’re more willing to stand up for their rights, to stand up to injustice,’ he said, adding that damage to factory buildings and equipment still appeared to be unusual, occurring in fewer than 1 in 20 protests.”
You can bet Wall Street will be watching closely.
The bigger question here, of course, is how you feel as an investor when your beloved profit-maker is associated with such an ugly scene. I personally own Apple stock, and the idea of a Chinese authorities cracking down on a worker protest doesn’t sit well with me. However, I am not naïve enough to think that you can wave a magic wand and give China democracy and fair wages overnight.
The sad reality of an emerging economy is that growth and justice take time. That doesn’t sit well with many Americans, particularly doe-eyed optimists.