Trade tensions between Australia and China are poised to escalate which could put a $153 billion export market in jeopardy. Tensions have been growing between the 2 trading partners following the Australian government’s push to launch an independent inquiry into the COVID-19 pandemic.
In response, the Chinese government has retaliated to suggestions of an independent inquiry by imposing economic pressure. China recently suspended beef imports from 4 meat processing plants in Australia and has threatened to slap major tariffs on Australian barley exports.
Chinese businesses and consumers have been a reliable source of demand for many Australian goods and services. As a result, Chinese demand has an important role in the post-pandemic recovery of Australia’s economy.
Here are 3 ASX shares that are reliant on Chinese demand and could suffer from a potential trade war.
Nufarm Limited (ASX: NUF)
Nufarm is a crop protection and specialist seeds company that supplies domestic and international farmers with support for food production. However, the company’s reliance on China as a supplier could put local farmers under pressure to produce crops and feed for livestock.
Nufarm’s supply chain is heavily exposed to negative repercussions from trade tensions with China. The company currently gets all of its products needed for agricultural production, such as herbicides and pesticides, directly from China. As a result, tariffs and supply constraints could have wider consequences.
Elders Ltd (ASX: ELD)
Agribusiness companies like Elders could also be right in the firing line if trade tensions with China escalate. Elders is a leading supplier of fertiliser, chemicals and livestock to regional and rural Australia. The company also has strong exposure to trade with China.
Elders currently imports all the ingredients for its crop protection and fertiliser distribution business from China. In addition, the company is also involved in the direct sale and distribution of Australian beef and lamb to Chinese consumers.
According to reporting in the Australian Financial Review, the government’s select committee into COVID-19 and the security issues the pandemic raises will also look at the supply-chain risk around Chinese imports.
Treasury Wine Estates Ltd (ASX: TWE)
The Australian wine market is already under pressure following a harsh bushfire summer. Australia is the 5th largest exporter of wine in the world, with China accounting for the majority of the volume.
The operations of Treasury Wine reflects the wine industry’s reliance on China, with Asia being the company’s most profitable market. Treasury Wine relies heavily on demand from China, generating more than 40% of its total profits from Asia. The company’s prestigious and luxury brands, such as Penfolds, are highly popular in the Chinese market and offer better profitability margins.
Treasury has already downgraded its earnings forecast due to the COVID-19 pandemic. Trade tensions could put the company under further pressure given its poor performance in other international markets.
Foolish takeaway
Although iron ore and coal are the largest imports to China, companies in these sectors have a greater pull in Chinese trade. In my opinion, companies and businesses that are heavily reliant on China for growth in the short and long term are the most susceptible to trade tensions.
Here’s a top ASX share that isn’t as reliant on China and could prosper in 2020 and beyond.
One “All In” ASX Buy Alert, that could be one of our greatest discoveries
Investing expert Scott Phillips has just named what he believes is the #1 Top “Buy Alert” after stumbling upon a little-owned opportunity he believes could be one of the greatest discoveries of his 25 years as a professional investor.
This under-the-radar ASX recommendation is virtually unknown among individual investors, and no wonder.
What it offers is an utterly unique strategy to position yourself to potentially profit alongside some of the world’s biggest and most powerful tech companies.
Potential returns of 1X, 2X and even 3X are all in play. Best of all, you could hold onto this little-known equity for DECADES to come
Simply click here to see how you can find out the name of this ‘all in’ buy alert… before the next stock market rally.
Returns as of 6/5/2020
More reading
- Indonesian market boom for 6 ASX shares
- How a Chinese boycott could impact these ASX shares
- How to earn more frequent retirement income from ASX shares
- Treasury Wine share price falls 5% as it faces another class action
- Have ASX shares in the Australian wine sector bottomed?
Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia has recommended Elders Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
The post 3 ASX shares that could suffer from China trade tensions appeared first on Motley Fool Australia.
from Motley Fool Australia https://ift.tt/3dJG9j1
Leave a Reply