Pair Trade Explained: Short Apple, Buy Samsung

Peter Garnry of Saxo Bank, a Danish investment bank and advisory firm, explained on CNBC his latest pair trade idea of buying shares of Samsung Electronics Co Ltd and shorting shares of Apple Inc. AAPL According to the analyst, Apple made some blunders in Asia where it "mis-interpreted" the demand it will see in the region which has resulted in an excess inventory of iPhones. Consumers can walk into any store and "immediately" purchase an iPhone but demand for Samsung's flagship Galaxy S7 device is "almost impossible." Meanwhile, China-based smartphone manufacturers continue to create devices that are "on par" with Apple's iPhone devices at a price point that is around 40 percent lower. Accordingly, the analyst thinks that Apple is "getting squeezed" in China and its woes in the country is not just temporary. Garnry added that Apple may be forced to sacrifice the premium image associated with its iPhone devices and attack the lower-end of the market. However, this "commoditization" would play into the hands of Samsung who already holds a dominant position in the commoditized markets and are "very good at this." Garnry warned that it is unlikely investors will see any "action" in Apple until mid-2017 and the immediate term will be characterized by "weakness" and "market share losses."