One news report you may have missed over the last few months is the growing tensions between Beijing and Canberra. These have come as a response to Australia’s PM who wanted an independent enquiry into the outbreak of COVID-19 earlier in the year. This consequence of this request was that Beijing demonstrated it can impact Australia’s economy if it wanted to by imposing tariffs across a number of different Australian imports. However, despite the tariffs imposed and threatened, the general market reaction has been one of indifference. The tariffs have been largely ignored. The consensus view is that this dispute will eventually blow over.
So, until evidence to the contrary, the market reaction seems to be to ignore the tensions and buy into the dips. According to Bloomberg, Australian equity investors are far more likely to focus on the improving domestic economy of the country and its strong COVID-19 response than the dispute between Beijing and Canberra. It seems to be seen as a political move without a real financial bite.
Treasury Wine Estates
Treasury Wine Estates have been hit recently on China’s decision to finally impose anti-dumping duties on a listed Australian Company. However, the market as a whole has remained positive and came close to erasing its 2020 losses last week amid rising coronavirus optimism. Let’s take a look at the financials:
30% of Australia’s benchmark, the ASX200, is made up by financials. The hope of an improving economy, a strong COVID-19 response, and global growth potential on vaccine optimism have also seen the financials surge more than 17% in November. In addition to this, there has been a 30% gain in energy stocks. This has helped the ASX reach its best monthly gain on record.
Materials are the second biggest weighting on the ASX index. A large amount of that is tied up in iron ore majors like BHP Group, Rio Tinto, and Fortescue Metals, none of which are likely to be subject to duties in the same way that Treasury Wine has been.
So for now the row between China and Beijing can be ignored until it spills over into larger, listed Australian companies. If it does spill over, watch out for risk-off sentiment dragging equities lower.