A2 Milk (ASX: A2M) share price drops as China suspends dialogue
the A2 Milk Company Ltd (ASX: A2M) The stock price takes a hit on the ASX, down 3.10% to $ 7.20 at yesterday’s close and down again in trade today.
The same goes for other ASX companies with major trade deals in China, as the People’s Republic suspends all talks with Australian trade and economy officials, including ministers.
Shares in Treasury Wine Estates Ltd (ASX: TWE), strongly engaged in trade with China, and others including Blackmores Limited (ASX: BKL), Bubs Australia Ltd (ASX: BUB) all fall.
Let’s take a closer look at the developments and what they mean for the action price of A2 milk, and others.
China suspends all activities of China-Australia strategic economic dialogue
In a rare public statement, released Thursday, China’s National Development and Reform Commission said it would indefinitely suspend all activities of the China-Australia strategic economic dialogue.
Citing Australia’s “Cold War mindset” and “ideological discrimination”, the Chinese agency took the dramatic decision to end all talks with Australia’s ministries of economy and government. trade, with immediate effect.
The move is China’s latest in the ongoing trade dispute between the East Asian giant and Australia. China has imposed tariffs on Australian wine, barley and beef and has blocked the importation of all Australian coal. Australia passed foreign interference laws, blocked Chinese state-owned Huawei from accessing Australia’s 5G network, quashed the Victorian government’s belt and road memorandum of understanding with China, and led the charge for an independent investigation into the origins of the virus causing COVID-19.
Companies like Treasury Wines have suffered greatly from the Chinese measures. While China has not targeted dairy products, A2 Milk’s share price has suffered as Australia’s borders closed. When the borders open, fears that the Chinese market will not be the same could be exacerbated by recent developments.
Trade concerns have been simmering for some time now. As early as May 2020, Australian ministers admitted that their Chinese counterparts were not even returning their phone calls.
A2 Milk share price drops
So could fears that Australia’s trade relationship with China will not return to normal have an impact on A2 Milk’s share price?
A2 Milk’s main selling product is its infant formula. In its semi-annual report for FY19 (pre-pandemic), the powdered product accounted for about 82% of all sales. Just under half of sales went directly to Asia. Sales in Australia and New Zealand were boosted by the daigou market, which then resold the products to China.
A suspension of this trade and uncertainty over Sino-Australian relations could wreak havoc on A2 Milk’s share price, with Blackmores, Bubs and others heavily exposed to the Chinese market.
But while China has imposed tariffs on many Australian industries, there is one sector it relies heavily on and has not restricted: iron ore.
BHP Group Ltd (ASX: BHP), Australia’s largest exporter of iron ore to China, is currently trading at $ 49.96, up 16% year-to-date.
At the time of writing, the A2 milk share price is trading at $ 7.13, down 39% from the start of 2021.
Where to invest $ 1000 now
When investment expert Scott Phillips has stock advice, he can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter that he’s been running for over eight years has offered thousands of paying members stock picks that have doubled, tripled, or even more. *
Scott has just revealed what he believes to be the five best ASX stocks for investors to buy now. These stocks are trading at very low prices and Scott thinks they are a great buy right now.
* Returns from February 15, 2021
Marc Sidarous has no position in any of the titles mentioned. Motley Fool Australia’s parent company, Motley Fool Holdings Inc., owns shares of BUBS AUST FPO. The Motley Fool Australia owns shares and has recommended A2 Milk, Blackmores Limited and Treasury Wine Estates Limited. The Motley Fool Australia recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article only contains general investment advice (under AFSL 400691). Authorized by Bruce Jackson.