China’s new tax could derail Blackmores Limited and Bellamy’s Australia Ltd shares

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Shares in Bellamy’s Australia Ltd (ASX: BAL) and Blackmores Limited (ASX: BKL) are falling today after news outlets reported that the Chinese government plans to impose a new tax on goods bought online and imported from overseas.

China is an attractive market for ASX-listed consumer goods companies by virtue of its size, although it remains a one-party state and companies hoping to grow into it are vulnerable to policy changes imposed by the government.

Apart from raising revenue, the new tax is likely designed to encourage Chinese consumers to buy more homemade goods in an effort to protect the local economy and stimulate the transition to a more consumption-oriented economy.

For investors it’s worth noting the tax will make the cost of overseas foodstuffs like Bellamy’s infant formula higher for Chinese consumers purchasing it online and this could put a dampener on the recent rocketing sales growth.

The Australian Financial Review is reporting that the levy could add 11.9 per cent to the cost of goods and given Bellamy’s trades on a high multiple of earnings due to expectations for more strong growth the stock is vulnerable to a price correction unless the company keeps growing sales quickly.

Much of Blackmores’ recent growth has also been powered by rocketing sales in China, although its share price is only marginally down today, which suggests investors feel it is less leveraged than Bellamy’s to online sales into China.

The size of China’s ecommerce market was recently demonstrated after website operator Alibaba Group became the biggest IPO in history when it hit the boards of the New York Stock Exchange in 2014.

Bellamy’s and Blackmores’ foodstuffs can be found for sale on the website today for example, although it is only one of many digital channels reportedly being used to trade the goods.

Today, Bellamy’s shares are down 5.8% to $10.22 and with analysts sure to be running the ruler over the potential impact of the tax the stock is likely to remain volatile this week.

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Motley Fool contributor Tom Richardson owns shares of Bellamy's Australia.

You can find Tom on Twitter @tommyr345

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia owns shares of Bellamy's Australia. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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