Surging Apple Hedging Costs Show It's Reeling From Trade Spat

(Bloomberg) -- While U.S. equities continue to struggle amid trade concerns, it's a stock that has remained relatively unscathed that hedgers are focusing on.

The cost of protecting against declines in Apple Inc. shares has jumped to a two-year high, with the price between bearish and bullish options becoming the highest among all S&P 500 Index members as of the last close, relative to readings over the past year. While the benchmark gauge has plunged about 9 percent from a record in January, Apple is down only 1 percent. Peers from the Nasdaq 100 Index of large-cap tech equities have dipped 7.8 percent in the period.

Investors are growing skeptical on Apple as concern over trade skirmishes between the world's two largest economies mount. China is the company's single-most important market outside the U.S., and most of its production chain is centered there. The Asian nation said on Wednesday it would impose an additional 25 percent levy on about $50 billion of U.S. imports, matching the scale of proposed U.S. tariffs announced on Tuesday.

“Apple is dependent on China for a huge part of its iPhone production, and the fear of a trade war pushes investors to search for protection,” said Mohit Bajaj, the director of exchange-traded funds at WallachBeth Capital in the U.S., who also looks at the broader market and large companies. “Some people didn't anticipate that the tit-for-tat measures from China would be this big. Market concern around Apple is seen in a soaring hedging cost.”

Concern that Apple's first-quarter iPhone shipments will fall short of expectations is also growing after analysts at Goldman Sachs Group Inc. and Rosenblatt Securities Inc. cut their estimates last week. Finally, broader worries about tighter regulation in the U.S. tech sector are bruising sentiment further.

To contact the reporter on this story: Elena Popina in New York at epopina@bloomberg.net.

To contact the editors responsible for this story: Arie Shapira at ashapira3@bloomberg.net, Cecile Vannucci, Sid Verma

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