The Chinese Ministry of Commerce announced a proposal to remove tariffs on Australian wine exports this week. If approved, this would be a massive game changer for Australia’s wine industry, as it would benefit Australian winemakers and the industries that support them.
But, rather than discussing the nature of the proposal, let’s look at who will benefit the most from this.
One such company is Treasury Wine Estate (ASX:TWE). It is a global wine company with consumers in more than 70 countries, including China. What’s exciting for Treasury Wines is that before the tariffs were introduced in 2020, its profits mainly came from the Chinese market.
Removing the tariffs could significantly increase the company’s profitability and could impact the share price.
We do need to consider the bigger picture: So playing devil’s advocate, I see the economic risks China has been facing, which is concerning for future wine sales in China.
China has high youth unemployment and financial issues in some of its largest institutions, as we have seen in the property sector in recent years. So I wonder whether the people of China would be in a hurry to buy their favourite bottle of Penfolds.
Since Treasury Wines reported last month, the share price has risen more than 9 per cent and looks a little stretched. Given this, I expect the stock to pull back in the short term, although it may trade sideways and consolidate until the final decision on the tariff is made. If the Chinese Government approves the tariffs being cut, I recommend watching this stock closely, as a run back up to $14.80 could well be on the cards.
Best & worst-performing sectors this week
The best-performing sectors include Information Technology, gaining more than half a per cent, followed by Utilities and Real Estate, which are both slightly in positive territory. The worst-performing sectors include Energy and Financials, down more than 3 per cent, followed by Industrials, down just under 2 per cent.
The best-performing stocks in the ASX top 100 include Block (ASX:SQM), which is up over 11 per cent, followed by Bellevue Gold (ASX:BGL), which is up over 6 per cent, and Metcash (ASX:MTS), which is up over 5 per cent. The worst-performing stocks include National Australia Bank (ASX:NAB), Westpac Banking Corporation (ASX:WES), REA Group (ASX:REA), Commonwealth Bank of Australia (ASX:CBA), and Domino’s Pizza Enterprises (ASX:DMP), which are all down more than 4 per cent.
What’s next for the Australian stock market?
Sellers have been active this week, pushing the All-Ordinaries index down just under 2 per cent to below 8,000 points. I believe the market has fallen after it was announced last week that we are experiencing weaker GDP and lower building approval numbers, which may have given sellers a reason to enter the market. It could also be that the market is just doing what it normally does.
If you remember, I mentioned last week that I anticipated the All-Ordinaries index would fall this week and next. I also shared that my target for the fall was likely to be 7,800 or 7,700 points, as the market needed to take a breather from the strong run-up since February this year. While 7,800 to 7,700 points are still the levels to watch, I also see support at the 7,900 level, so don’t be surprised if the market finds support at this level before rising again.
I am quite positive about our market and anticipate that March will finish in positive territory. From a seasonal perspective, based on analysing the performance of the All-Ordinaries index over the last 40 years, March averages a positive return of 0.65 per cent. Last week, I also emphasised the importance of patience and not getting caught up in Fear of Missing out (FOMO).
With the current pullback underway and March statistically finishing in positive territory, this provides an opportunity to set yourself up to buy stocks to capture some great profits this year. Therefore, if you haven’t begun already, I urge you to start researching stocks to take full advantage of the next move up.
On a side note, the Reserve Bank (RBA) will announce its decision on interest rates next Tuesday. So be prepared for some possible extra volatility on the market early next week.
For now good luck and good trading.
Dale Gillham is Chief Analyst at Wealth Within and international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au
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