Apple's problems in China fuel a $20 billion Xiaomi rally

Xiaomi Corp. (1810.HK) has gained about $20 billion in market value from a June low, thanks to enthusiasm for its newest handset as well as pushes into electric vehicles and other sectors. In that time, the Hong Kong-listed stock surged more than 60%, making it the greatest performer on the Hang Seng Tech Index.

Chinese Android companies are profiting while Apple's sales in the nation falls, despite evidence that Asia's largest smartphone market is beginning to recover after years of decline.

Since its late-October introduction, Xiaomi's 14 series has received over one million orders. Following Huawei Technologies Co.'s triumph with the Mate 60 Pro, this is the second smash launch for a Chinese smartphone in as many months. Although Huawei is not publicly traded, investors have been buying up shares in its suppliers.

While Xiaomi's stock has risen in response to the stellar 14 series orders, some experts believe it is ready to rise even more. EVs and "artificial intelligence of things" are viewed as potential additional drivers.

"We believe there is a trading opportunity in the next six months with smartphone and AIoT growth turnarounds and early expectations building for Xiaomi's electric vehicle foray," JPMorgan Chase & Co. analyst Gokul Hariharan said in a note last week, upgrading the stock to overweight.

Other Wall Street firms, like Morgan Stanley and Citigroup Inc., have indicated that China's smartphone downturn is coming to an end, with a likely comeback into next year. Huawei's unexpectedly spectacular recovery has fueled Chinese consumers' demand for innovative indigenous products.

"Huawei is clearly gaining ground rapidly following the launch of its new product featuring its unique camera function and satellite calling," stated Jian Shi Cortesi, portfolio manager at GAM Investment Management. "iPhone sales are losing momentum in China at the moment, as many consumers don't perceive much functionality improvement in the new iPhone."

Xiaomi's 14 series also includes an upgraded camera, the latest Qualcomm Inc. CPU, and HyperOS, a unique operating system meant to connect the smartphone to automobiles, appliances, and other AIoT devices.

While Huawei is expected to win the highest market share among Chinese companies in the current smartphone cycle, Bloomberg Intelligence analyst Steven Tseng believes Xiaomi's technology will help it compete with Oppo and Vivo into next year. "In addition, the potential growth opportunity in overseas markets will be in favor of Xiaomi, which has the best overseas presence among all Chinese phone vendors," he went on to say.

According to technical indicators, the surge in Xiaomi's shares following the debut of the 14 series has pushed them into overbought territory. However, market observers believe the shares could rise further as a result of future catalysts such as Singles' Day and third-quarter earnings due on November 20.

"Xiaomi is the only top five smartphone brand to see shipment increases both quarter-on-quarter and year-on-year in 3Q 2023 as it strengthened its positions in key markets such as China and India," Counterpoint Research said in a research note.

Goldman Sachs Group Inc. analyst Timothy Moe stated in a note that the business had a "historical high" gross merchandise value for Singles' Day, thanks to strong performance in the 14 series.

There are other ways to trade the concept, as Xiaomi, like Apple and Huawei, has its own ecosystem of vendors. Will Semiconductor Co. and OFILM Group Co., two essential component producers for Xiaomi, have both risen in the last month.

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