Last week, Trade Minister Simon Birmingham announced the Comprehensive Economic Partnership Deal between Australia exporters and Indonesia markets takes effect from 5 July 2020. This could not have come at a better time given the economic impacts from COVID-19.

Australia’s balance of payments surged to a record $10.6 billion in March. The largest in recorded history. This is due to strong export demand for iron ore and surging demand for gold. The lowest Australian dollar for almost 2 decades has also helped increase revenues.

Lastly, we have had the largest sudden fall in imports in our nation’s history. The deal will help Australian manufacturers to increase market share in our closest neighbour, extending our national trade surplus.

I believe the following ASX shares are the most likely to benefit immediately.

Targeted Indonesian market

GrainCorp Ltd (ASX: GNC) will see tariff-free exports of up to 500,000 tonnes of wheat, barley and sorghum to Indonesia each year. This will grow by 5% annually. This defensive share has become more important to our national economy during the pandemic than at any time in its history.

GrainCorp has rebuilt itself over the past 3 years after exports to Indonesia collapsed by over 70% amid drought and intense competition. This provides an opportunity to further rebuild markets into what used to be Australia’s largest wheat customer.

Other agricultural companies to benefit in this space include those in the red meat sector of beef and sheep. In this sector, tariffs will be immediately halved to 2.5% and eliminated totally over 5 years. This is likely to provide tangible benefits for Australian Agricultural Company Ltd (ASX: AAC) as well as Elders Ltd (ASX: ELD).

Dairy producers will also see tariffs eventually removed from their products. This creates an opportunity for market leaders like A2 Milk Company Ltd (ASX: A2M), as well as rising challengers such as Synlait Milk Ltd (ASX: SM1).

Steel producers will have annual tariff-free access for 250,000 tonnes of rolled steel coil, exposing additional market share for companies such as BlueScope Steel Limited (ASX: BSL).

Foolish takeaway

Our nation’s ability to maintain an overall trade surplus is going to be crucial in the coming months and years. Many countries are set to see dramatic declines in economic activity as a result of the COVID-19 pandemic.

For Australia, free trade deals such as these providing increased access to Indonesian markets are likely to be the difference between a crushing depression and a swift path back to prosperity. 

More reading

• Where to invest $20,000 into ASX shares for strong long term returns
• These ASX shares booked the biggest gains last week
• 5 things to watch on the ASX 200 on Monday
• 3 of the best ASX 200 shares to buy and hold for 10 years
• How to make a $1 million share portfolio by investing $1,000 a month

Motley Fool contributor Daryl Mather has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of A2 Milk. 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.

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At the weekend I looked at how successful $20,000 investments had been in a number of popular ASX shares over the last 10 years.

But that was then and this is now. So, I thought I would take a look at three shares which I think could generate very strong returns for investors over the next 10 years.

Here’s why I would invest $20,000 in these ASX shares:

a2 Milk Company Ltd (ASX: A2M)

This infant formula and fresh milk company’s shares have been incredibly resilient during the recent market volatility. In fact, they are up around 30% since the start of the year. The good news is that I don’t think it is too late to invest with a long term view. Especially given the demand it continues to experience for its infant formula products in the lucrative China market. I believe this and its expanding fresh milk footprint will continue to underpin strong earnings growth over the next decade.

Kogan.com Ltd (ASX: KGN)

Another company to consider investing $20,000 into is Kogan. It is a growing ecommerce company and Australia’s answer to Amazon. I think it is a great long term option for investors due to the continued shift to online shopping in the country. An estimated ~10% of retail spending is made online at the moment in Australia. I expect this number to grow materially over the next decade and beyond, which will only benefit Kogan.

Xero Limited (ASX: XRO)

I think this cloud-based business and accounting software provider would be a great place to invest $20,000. This is due to its global market opportunity, the quality and stickiness of its product, and its strong pricing power. The latter two are evident in both its customers numbers and churn rate. During the first half of FY 2020, Xero grew its subscribers by 30% to 2.057 million and reported a churn rate of just 1.1%. This was despite it lifting its prices in some markets. In respect to its market opportunity, it is estimated that less than 20% of the global English-speaking SME market is using cloud-based accounting software. I believe this gives it a massive runway for growth. Though, with its full year result due later this week, it might be worth holding fire until that release.

More reading

• Indonesian market boom for 6 ASX shares
• REA Group shares are up 53% since late March. Is it too late to invest?
• These ASX 200 shares saw the biggest falls last week
• These ASX shares booked the biggest gains last week
• Is Santos the best ASX 200 energy share?

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Altium and Xero. 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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Phillip Capital has rated ASX cannabis share Althea Group Holdings Ltd (ASX: AGH) a buy with a target price of 57 cents. Shares in the medical marijuana distributor are currently trading at 39 cents. The broker is positive on the company, saying Althea’s execution to date has been excellent. 

Who is Althea?

Althea was founded in Melbourne in 2017 and holds licenses to import, cultivate, produce, and supply medicinal cannabis to eligible Australian patients. At the end of March, Althea had supplied medicinal cannabis to 5,800 patients via 509 healthcare professionals. 

International interests 

Althea has business interests in Germany and Canada. The company recently signed a 3-year supply agreement with Nimbus Health GmbH, a pharmaceutical wholesaler with 25% medicinal cannabis market share in Germany. 

Nimbus will sell and distribute Althea’s full suite of medicinal cannabis products under the Althea brand name in Germany. Althea will receive payment for products supplied, as well as 50% of the net profit on sales. In Germany, 120,000 patients have been prescribed medicinal cannabis to date. This number is expected to grow to 1 million by 2024. 

Althea acquired Canadian company Peak Processing Solutions last year. The company plans to produce edible, extract, and topical cannabis products. A building re-fit of its plant has been completed and regulatory approval is anticipated shortly. 

What does the broker say? 

In Australia, each of Althea’s prescribing doctors has an average of 11.4 medicinal cannabis patients, up from 4 a year ago. Althea’s Australia sales have gone from zero in FY17 to $0.8 million in FY18 to a forecast $5 million in FY20. Phillip Capital is forecasting sales of $12.1 million in FY21 and $19 million in FY22. 

Phillip Capital likes the large market opportunity in Germany and is optimistic on the Canadian opportunity. Althea will target the 2,500+ doctors in Germany who are actively prescribing medicinal cannabis, providing education through its Concierge platform. Based on Althea’s Australian performance, Phillip Capital estimates Althea will achieve 7.5% market share in Germany in year 3. 

The broker says the German expansion looks to be an excellent move. The market is only 3 years old, has supportive government access rules, and strong reimbursement from health funds in place. In Canada, it is anticipated several initial customers will be announced imminently. Phillip Capital is predicting Peak Processing Solutions will exceed its year 1 target of C$7 million sales by 50%.

Outlook

Althea’s international businesses are effectively in start-up mode, and Peak Processing is a contract processing business which is completely new for Althea. This means a wide range of outcomes is possible for the business. Nonetheless, the medicinal cannabis sector is expected to remain resilient through the coronavirus pandemic. 

More reading

• How did ASX cannabis shares perform in the latest quarter?
• Can ASX cannabis shares survive coronavirus?

Motley Fool contributor Kate O’Brien has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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