The A2 Milk (ASX: A2M) share price has taken a hit in the market after China suspended all talks with Australia. Let’s take a look.
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The A2 Milk Company Ltd (ASX: A2M) share price is taking a hit on the ASX, down 3.10% at $7.20 at yesterday’s close and falling again in trade today.
It’s the same story for other ASX companies with major trade deals in China as the People’s Republic suspends all talks with Australian trade and economic officials, including ministers.
Let’s take a closer look at the developments and what they mean for the A2 milk share price, and others.
China suspends all activities under China-Australia Strategic Economic Dialogue
In a rare public statement, issued on Thursday, the Chinese National Development and Reform Commission said it would suspend indefinitely all activities under the China-Australia Strategic Economic Dialogue.
Citing Australia’s “Cold War mindset” and “ideological discrimination”, the Chinese agency took the dramatic step of ending all talks with Australian economic and trade ministries, effective immediately.
The move is the latest by China in the ongoing trade dispute between the East Asian giant and Australia. China has placed tariffs on Australian wine, barley, and beef, and blocked the importation of all Australian coal. Australia has passed foreign interference laws, blocked Chinese state-owned Huawei from accessing Australia’s 5G network, cancelled the Victorian government’s Belt and Road MoU with China and led the charge for an independent inquiry into the origins of the virus that causes COVID-19.
Companies like Treasury Wines have suffered greatly under the Chinese measures. While China has not targeted dairy, the A2 Milk share price has been suffering under Australia’s border closures. When the borders open, fears the China market may not be the same could be exacerbated by the recent developments.
The trade concerns have been simmering for some time now. As far back as May 2020, Australian ministers admitted their Chinese counterparts were not even returning their phone calls.
A2 Milk share price falls
So, could fears over Australia’s trade relations with China not returning to normal be impacting the A2 Milk share price?
A2 Milk’s premier sales product is its infant formula. In its half-year report for FY19 (pre-pandemic), the powdered product made up around 82% of all sales. Just under half of sales went directly to Asia. Sales in Australia and New Zealand were spurred on by the daigou market, which then on-sold the products to China.
A suspension of that trade and uncertainty over Sino-Australian relations is likely to take its toll on the A2 Milk share price, along with Blackmores, Bubs, and others highly exposed to the Chinese market.
But while China has put tariffs on many Australian industries, there is one sector it relies heavily upon and has not restricted: iron ore.
BHP Group Ltd (ASX: BHP), the largest iron ore exporter in Australia to China, is currently trading at $49.96, up 16% year-to-date.
At the time of writing, is A2 milk share price is trading at $7.13, down $39% since the start of 2021.
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Marc Sidarous 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 A2 Milk, Blackmores Limited, and Treasury Wine Estates Limited. The Motley Fool Australia has recommended BUBS AUST FPO. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.