Shares firm but stance unclear
China’s clampdown still hard to read
Adegree of optimism has returned to the companies that took a hammering last year f rom China’s clampdown on goods sold through unofficial trade channels into the People’s Republic.
It is still far from clear, but it now appears that the financial markets — particularly in Australia where the whole issue has had a big impact on stocks like the organic infant formula company Bellamy’s and vitamin supplements maker Blackmores — have taken China’s latest edict as a softening of its approach. Their share prices have firmed as a result.
The New Zealand-founded A2 Milk and the manuka honey company, Comvita, whose shares were knocked lower last year on the back of China’s imposition of a 11.9 per cent tax on goods sold through the unofficial “daigou” channel, have also been gaining.
These stocks may have enjoyed a return to favour, but a translated statement from China’s Ministry of Commerce offers little in the way of extra light on the issue.
The ministry has widened the number of cities whose citizens are allowed to buy through the unofficial channels to 15 from 10, but did not seem to offer much else in the way of hard information.
A2 Milk record
A2 Milk — which suffered only a brief knockback last year — saw its shares hit an all time high of $2.86 yesterday, taking its market capitalisation to just over $2 billion.
One fund manager said A2 Milk had attracted “short selling” interest from hedge funds, to the point where the market was short of stock.
Comvita, whose fortunes have been closely linked to the daigou channels, sees the latest development from China as a mild positive, but the situation remains unclear.
“What is clear is that there will continue to be an 11.9 per cent tax,” chief executive Scott Coulter told Stock Takes.
“They will add some more regulation for the high-risk products, so the question around that is what constitutes a high risk product,” he said.
It looked like any product that makes a health claim will attract extra regulation, he said.
“It is our view that the changes that they made in 2016 are going to stay,” he said.
“From our perspective there is still some uncertainty as to how they will regulate food products where you make a functional claim.
“At some stage the Chinese are going to say that you are going to have to meet the local regulations,” Coulter said. “My general view is that it is still wait and see.”
The daigou t rade has mushroomed.
It’s been estimated that there are 40,000 daigous, operating with varying degrees of sophistication and scale — some with their own warehouses — in Australia alone.
Perhaps some more clarity around the issue will emerge next week after China’s Premier Li Keqiang touches down in New Zealand for talks.
Fall from grace
Fletcher Building’s slashed earnings guidance for the full year by $110 million has left investors scratching their heads as to how and why the company appears to have bypassed any financial benefit from the construction boom that has gripped much of the country.
“One wonders,” said one fund manager. “The project over-runs are understandable in some ways — it is a very hot building cycle — but you question the culture of the organisation and the management systems as to why these were not known and addressed far earlier,” the fund manager, who did not want to be named, said.
This week, the company said Graham Darlow, head of Fletcher Construction, would retire. He is being replaced by Michele Kernahan. The downgrade was caused by an estimated $120m in losses, which are understood to have arisen from two major Fletcher Construction jobs: Christchurch’s $300m Justice and Emergency Precinct for the Ministry of Justice and the $700m NZ International Convention Centre for SkyCity Entertainment.
The stock eased further yesterday, trading at $7.92.
That was down 22c f rom Wednesday’s close but ex a 20c dividend, and down from $10.21 in February, just before the company first indicated its earnings would not be as robust as the market had expected.