China has been a huge avenue for growth for many ASX shares over the past decade or two. The country’s burgeoning middle-class has been fertile ground for many ASX companies to expand into, selling ‘Brand Australia’ products that have proved highly popular for millions of Chinese customers.

But with geopolitical tensions on the rise in recent weeks, could this avenue be shut off?

According to reporting in the Australian Financial Review (AFR), China is turning the screws on Australian foreign policy, angered by moves from the Morrison government to support an independent international inquiry into the origins of the outbreak of the coronavirus pandemic.

As reported by the AFR, China has sounded out replacing Australian barley and beef exports with those from the USA and Russia in retaliation.

So what if these tensions escalate? There’s a lot of very successful Australian exporters that would euphemistically be put in a right pickle.

Some ASX shares that might be in the firing line

Take Treasury Wine Estates Ltd (ASX: TWE). Treasury has put a lot of time and effort into building a market for its quality Aussie wines in China. Its high-quality and high-margin brands like Penfolds have proven a hit for the Chinese middle-class – so much so that Treasury generated around 40% of its earnings in Asia during FY19.

Australian dairy has also proved very popular in China. The A2 Milk Company Ltd (ASX: A2M) and Bubs Australia Ltd (ASX: BUB) have been exploiting this to ruthless effect, particularly in the infant formula market. This partly explains why the a2 Milk share price has ballooned by 3,700% over the past 5 years and Bubs by over 1,400%. We could see this unwind if China really wants to play hardball with the Australian government.

There’s also the iron ore exporters Fortescue Metals Group Limited (ASX: FMG), Rio Tinto Limited (ASX: RIO) and BHP Group Ltd (ASX: BHP). China’s demand for our iron ore is famously insatiable and helped us get out of the quagmire of the GFC last decade. BHP also exports thermal and metallurgical coal to China. I think it’s unlikely, but if China really wanted to send a message, this would hit where it hurts.

What can we take from these risks?

I think the best lesson to draw from these events and their possibilities is how unpredictable investing can be. Most companies are influenced by how much money they can make, but other factors (like geopolitics, in this instance) can also have a tangible effect on your investments. The best investors try and make contingencies for the worst possible outcomes. It’s not a bad way to go, judging by the things we are seeing play out on the international stage in 2020.

More reading

• Brokers name 3 ASX 200 shares to buy today
• Get paid huge amounts of cash to own these ASX dividend shares
• Broker tips 10 ASX 200 shares for a post-coronavirus recovery
• 4 top ASX 200 shares for blue chip investors
• Goldman Sachs names 5 reasons iron ore prices won’t crash

Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of BUBS AUST FPO. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia owns shares of A2 Milk. The Motley Fool Australia has recommended BUBS AUST FPO. 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 Are these China-exposed ASX shares in danger in 2020? appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2Z1VCa1

Listed medical and diagnostic facilities operators are outperforming the market today as the floodgates to elective surgeries are swung open.

The Ramsay Health Care Limited Fully Paid Ord. Shrs (ASX: RHC) share price and Sonic Healthcare Limited (ASX: SHL) share price jumped 2.7% each in the last hour of trade to $63.80 and $27.09, respectively.

The Healius Ltd (ASX: HLS) is trailing behind with a 1.9% increase to $2.40, but that’s still ahead of the 1.3% gain by the S&P/ASX 200 Index (Index:^AXJO).

Consensus earnings upgrade candidates

These companies could see a big boost to earnings as the Australian Financial Review reported on the upcoming “hidden wave” or elective surgeries and tests.

The federal government announced that it was loosening restrictions on elective surgeries as the country appears to have the COVID-19 pandemic under control.

The clampdown on non-life-threatening procedures was to ensure that our hospital system had the capacity to cope with the potential spike in emergency coronavirus patients.

Pent-up demand to hit

The warnings and response from the government to COVID-19 had another unintended consequence. Australians started putting off regular check-ups as they were worried about clogging up our health system and putting themselves in close proximity with possible COVID-19 patients.

The big drop in attendances and elective surgeries pressured the earnings of private hospitals and clinics, while falling demand for diagnostic tests (other than for coronavirus) impacted on Sonic.

However, that’s about to change and shares in Ramsay, Sonic and Healius could regain the lost ground from February.

Six-month backlog

Pent-up demand from deferred medical checks and minor procedures are likely to force medical facilities to operate overtime over many months.

The six-week clampdown on elective surgeries created a backlog of nearly 400,000 cases, according to consultant surgeon and senior lecturer at the University of Newcastle, NSW, Dr Peter Pockney.

He co-authored a major study on the return of elective surgery in 190 countries and he was reported in the AFR as saying that “it would take 22 weeks to clear if hospitals increase the number of surgeries performed each week by 20 per cent compared to pre-pandemic activity”.

Counting the costs

Elective surgeries are only one side of the problem. Australians have also put off cancer screening. The AFR also quoted the chief executive of Cancer Council Australia, Professor Sanchia Aranda, estimating that one in 10 people may have delayed checks during the lockdown.

If these delays lasted for six months, Professor Aranda believes 7,000 cancers will be picked up later. The later a cancer is detected, the higher the chance of death.

The only potential problem I see now is the waiting time to get in to see your doctor.

Not taking drastic action on COVID-19 costs lives, but acting aggressively to contain the pandemic is likely to be just as, if not more costly.

More reading

• These 4 ASX shares are at 52-week highs. Time to invest?
• Brokers name 3 ASX 200 shares to buy today
• Why the best performing ASX stock might have more room to run higher
• ASX 200 up 0.8%: Big four banks push higher but Xero tumbles lower
• Want to invest like Warren Buffett? Buy and hold these ASX 200 shares

Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Ramsay Health Care Limited and Sonic Healthcare 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 The next ASX sector in a post COVID-19 earnings upgrade cycle appeared first on Motley Fool Australia.

from Motley Fool Australia https://ift.tt/2Lthfrw