MoneyTalks is Stockhead\u2019s regular recap of the ASX stocks, sectors and trends that fund managers and analysts are looking at right now.<\/p>\n
Today we hear from Megan Stals, market analyst at the Australian share trading app & platform Stake.<\/em><\/strong><\/p>\n \u00a0<\/p>\n She says the Middle Kingdom\u2019s economy faces a Great Wall of challenges right now \u2013 burgeoning youth unemployment; an awfully ageing population, preposterous local government debt, and a property crisis for the ages.<\/p>\n \u201cIt\u2019s not pretty,\u201d Megan told Stockhead<\/em>. \u201cAlthough September\u2019s GDP surpassed expectations \u2013 indicating\u00a0 a few of Beijing\u2019s stimulus measures were taking effect \u2013 subsequent data releases have painted a less optimistic picture.<\/p>\n \u201cManufacturing activity contracted in October, signalling a slowdown in construction and services, while CPI showed a price decline of 0.2% year-on-year, following a massive decline in pork prices.<\/p>\n \u201cGiven that core inflation, which strips out more volatile products, also dropped by 0.6%, it\u2019s clear that domestic demand continues to be weak.\u201d<\/p>\n In addition, Megan singles out 2023\u2019s big question mark around the Single\u2019s Day shopping festival which appears to have drawn a lacklustre response from local consumers\u2026 formerly the absolute backbone of China\u2019s economic growth.<\/p>\n Originally a crafty Jack Ma-inspired 24-hour online shopping binge to celebrate what the kids started calling Singles Day (November 11 each year for the four 1\u2019s of 11.11) the idea now in its 15th iteration and until last year had evolved into a swirling, unending multi-week retail frenzy \u2013 complete with celebrity performances and a closing ceremony of Olympian proportions across China\u2019s once unstoppable e-commerce platforms.<\/p>\n This the 15th year of the shopping festival was the most toned down event of them all with no celebrity gala and no official endorsement of ostentatious consumption.<\/p>\n Megan says that given Australia\u2019s reliance on China, this ongoing downturn has been one of the main factors behind the ASX 200\u2019s poor performance in 2023.<\/p>\n \u201cWhile the more recent economic data suggests a sluggish scenario, it\u2019s clear that China is looking outwards in the hope of stimulating growth, and this could work in favour of Australian stocks over the long term.<\/p>\n \u201cIn addition, it increases the likelihood of additional stimulus to recover growth as Beijing faces pressure to achieve its 5% annual GDP target.<\/p>\n \u201cWhile Australian stocks are unlikely to benefit from a broad Chinese recovery any time soon, Anthony Albanese\u2019s recent visit to China is evidence that relations are thawing, and tariffs on goods like lobster and beef are currently under review, potentially opening pockets of opportunity on the ASX.\u201d<\/p>\n \u00a0<\/p>\n \u00a0<\/p>\n \u201cI don\u2019t mind starting with wine.\u201d<\/p>\n And things have been happening on the China front for a diversified Treasury Wine Estate.<\/p>\n Megan says the expedited review of tariffs on Australian wine, which is expected to conclude within five months, offers significant promise, and TWE is one to watch.<\/p>\n \u201cBefore the establishment of heavy trade tariffs, the Australian wine industry was exporting goods worth $1.3 billion annually, but this has since ground to a halt, leading Treasury Wine\u2019s profits to shrink around 35%.<\/p>\n \u201cThe company has since pivoted by diverting high-end red wines from Australia into Thailand, Malaysia, Singapore and Vietnam, but has expressed its desire to return to China when possible.\u201d<\/p>\n Since the tariff review, Treasury Wine\u2019s stock rose by 4% higher, Megan notes.<\/p>\n \u201cBut it\u2019s still down by over +17% in the past year, with a long way to go before reaching its pre-pandemic highs.<\/p>\n \u201cGiven the recent diplomatic efforts from China, the chances of a restart look more promising, and this would work in favour of Treasury Wines, yet anything can happen in today\u2019s uncertain world. While a continuation of tariffs would be bad news for the stock, the company\u2019s diversification into other parts of Asia has actually worked well, creating some level of protection if the worst case scenario does materialise.<\/p>\n \u201cInvestors have also been concerned about Treasury\u2019s $1.6 billion takeover of US winemaker Daou, which initially led the share price to drop by over 7%, following a share placement. Given Treasury Wine\u2019s previous lack of success in the US the jury is still out on whether this deal is wise. However, it\u2019s understandable that the management team will be keen to build a buffer by growing market share outside of China.\u201d<\/p>\n \u00a0<\/p>\n \u201cElders, I believe, is very well placed heading into the new year.\u201d<\/p>\n Megan says the elimination of tariffs on beef imports by 1 January 2024 is a positive for ELD.<\/p>\n \u201cAustralia is one of China\u2019s major beef suppliers, capturing 9.5% of the import market through its reputation for quality, and the company\u2019s export and distribution units look set to benefit.<\/p>\n \u201cThe company has a well-established and expansive network across rural Australia, with diversified revenue streams including livestock, grain and real estate \u2014 however, the stock has dropped significantly since 2022, after adverse weather conditions from La Nina continued to harm profits. That said, it finally delivered some good news last week in the form of better-than-expected full-year results, as falling prices for fertilisers and agricultural chemicals acted as a tailwind.\u201d<\/p>\n And then there\u2019s the recent acquisitions \u2014\u00a0 nine (no less) in the 12 months to September \u2014 which Stal reckons are expected to pay off in the coming year.<\/p>\n \u201cShareholders responded well to the recent result, with shares surging 16% on the news, yet the stock is still down over 28% YTD which could be seen as a potential buying opportunity. Still, the risks are still high given the upcoming El Nino summer, and continued adverse weather events. The stock goes ex-dividend on the 21st of November, so bear that in mind before diving in.\u201d<\/p>\n \u00a0<\/p>\n \u201cAnd finally let\u2019s talk Dr Copper.\u201d<\/p>\n Megan reckons the struggling property sector in China might have cast some shadows all over iron ore, but it\u2019s not all bad news for Australian commodities.<\/p>\n \u201cChina\u2019s been gradually easing unofficial curbs on Australian copper imports and despite the red metal\u2019s connection to construction, this is being offset by China\u2019s EV manufacturing dominance.<\/p>\n \u201cCopper miners have not performed well over the past few months, primarily due to being closely tied to the ups and downs of the global economy, but most analysts are predicting a significant copper deficit over the next decade as the world looks to electrify. While China is ramping up its own production of the metal, its importance to electrification means copper ore imports are still likely to continue for the foreseeable future,\u201d she adds.<\/p>\n \u201cWhich brings me to ASX-listed Sandfire which owns the Motheo mine on Botswana\u2019s Kalahari Copper Belt.<\/p>\n \u201cThis is one stock that could benefit from China\u2019s increased production of EVs, evidenced by the stock\u2019s steady climb from $4.74 to $6.10 in the last year. While Sandfire Resources\u2019 revenue actually dropped 13% over last year, due to copper\u2019s correlation with the global economy, the long term outlook appears positive, and this is being reflected in the share price.\u201d<\/p>\n \u00a0<\/p>\n The views, information, or opinions expressed in the interview in this article are solely those of the writer and do not represent the views of Stockhead.<\/em><\/p>\n Stockhead has not provided, endorsed or otherwise assumed responsibility for any financial product advice contained in this article.<\/em><\/p>\n <\/span><\/p>\n The post MoneyTalks: Megan says it\u2019s time to stake your China claim<\/a> appeared first on Stockhead<\/a>.<\/p>","protected":false},"excerpt":{"rendered":"Megan\u2019s watching China<\/h2>\n
3 ASX Stocks All Set for the China Challenge<\/h2>\n
Treasury Wine Estates (ASX:TWE)<\/strong><\/a><\/h2>\n
Elders (ASX:ELD)<\/strong><\/a><\/h2>\n
Sandfire Resources (ASX:SFR)<\/strong><\/a><\/h2>\n