Lucky newton saw a different apple

Lucky newton saw a different apple

Apple Inc now commands a value higher than Italy’s GDP of $2 trillion, two years after hitting the $1 trillion mark in 2018. Microsoft, Amazon and Alphabet, which owns Google, are also reaching for this ethereal height, even as the first company to climb Mount $2 trillion, Saudi Aramco, straggles, weighed down by falling demand for oil. Of course, Apple is a remarkable company, but its current valuation is a product of economic crisis, investor panic and lack of options.

Even since the Global Financial Crisis of 2007-08 induced central bankers of the major economies to adopt a policy of creating lots and lots of fresh money, in a policy dubbed quantitative easing, the world has been awash in liquidity. Instead of raising the prices of goods and services, this liquidity has inflated asset prices, pushing price-earning ratios sky-high and bond yields close to zero.

The pandemic forced most economies to down their shutters, and governments and central banks once again went into overdrive, pumping new money into the system. Again, this response to the crisis has sent asset prices going up. However, there is also extreme panic and a proportionately fervent search for safe havens. Among currencies, the dollar was the chosen one. Among stocks, the tech companies, which found their use actually going up when people worked from home, were favoured. Gold, of course, was crowned the king of safe havens. Apple’s price-earning ratio is an unrealistic 35 right now. If the US-China trade tensions worsen, and the US bans WeChat, an app that is widely used in China, Apple will not be able to host that app on its App Store and the Chinese would prefer the app over an iPhone. Apple would lose its biggest market.

Apple is being accused of abusing its market power by Epic Games, a game maker who has sued Apple for kicking its Fortnite game off the App Store in return for trying to sell in-game offerings without giving Apple its 30% levy on all payments on its platform, stoking anti-Big Tech sentiments in the US. Apple’s valuation can move only down, as the world gets back to normal.