Export-heavy shares have been given a boost today after Australia confirmed its participation in the world’s largest ever free trade agreement – the Regional Comprehensive Economic Partnership (RCEP).
In earlier trading, major Australian wine exporter Treasury Wine Estates Ltd (ASX: TWE) share price rose by 3% to $9.46. Crop protection developer Nufarm Limited (ASX:NUF) is up 2% to $4.07, while copper exporter Sandfire Resources Ltd (ASX: SFR) also lifted 2% to $4.36.
What’s the big deal with RCEP?
RCEP has been billed as the world’s largest ever trade deal, covering more than 30% of global GDP, and 30% of the world’s population. It has been 9 years in the making, and its founding members announced over the weekend include China, Japan, South Korea, 10 members of the Association of Southeast Asian Nations (ASEAN), and of course, Australia.
By participating in this deal, the Australian Government hopes that it can diversify Australia’s export markets, and not become reliant one or two big trading partners. Trade Minister Simon Birmingham emphasised the importance of this diversification by saying that ASEAN nations have a big role to play in this trading bloc. He says:
ASEAN put together is Australia’s second largest trading partner. It includes some of the most dynamic economies in the region, such as Vietnam and Indonesia. Those 10 RCEP nations with enormous diversity are central to the strategic relationship that Australia has with our region.
We see the opportunity for huge economic growth and trade growth between Australia and the nations of ASEAN, but also for integration of supply chains that can give Australian businesses easier and better access and greater diversification over time amongst those countries.
Why is RCEP good for Australian export-driven companies
Analysts have commented RCEP could provide some sort of calm amid the trade tensions between China and Australia, as both countries are members of the new bloc. The trade deal could also reduce Australia’ economic reliance on China, especially since the latter has recently issued investigations into and potential bans on Australian products such as wine, copper, sugar, barley, and others. Exporters of these products will stand to benefit from this latest trade agreement.
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Motley Fool contributor Eddy Sunarto has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates 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.
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