3 ASX shares that could suffer from China trade tensions

Here are 3 ASX shares that are reliant on Chinese demand and could suffer from increased trade tensions and tariffs.

| More on:
a man looks at a stock exchange graph board backgrounded by a Chinese flag

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Trade tensions between Australia and China are poised to escalate which could put a $153 billion export market in jeopardy. Tensions have been growing between the 2 trading partners following the Australian government's push to launch an independent inquiry into the COVID-19 pandemic.

In response, the Chinese government has retaliated to suggestions of an independent inquiry by imposing economic pressure. China recently suspended beef imports from 4 meat processing plants in Australia and has threatened to slap major tariffs on Australian barley exports.

Chinese businesses and consumers have been a reliable source of demand for many Australian goods and services. As a result, Chinese demand has an important role in the post-pandemic recovery of Australia's economy.

Here are 3 ASX shares that are reliant on Chinese demand and could suffer from a potential trade war.  

Nufarm Limited (ASX: NUF)

Nufarm is a crop protection and specialist seeds company that supplies domestic and international farmers with support for food production. However, the company's reliance on China as a supplier could put local farmers under pressure to produce crops and feed for livestock.

Nufarm's supply chain is heavily exposed to negative repercussions from trade tensions with China. The company currently gets all of its products needed for agricultural production, such as herbicides and pesticides, directly from China. As a result, tariffs and supply constraints could have wider consequences.   

Elders Ltd (ASX: ELD)

Agribusiness companies like Elders could also be right in the firing line if trade tensions with China escalate. Elders is a leading supplier of fertiliser, chemicals and livestock to regional and rural Australia. The company also has strong exposure to trade with China.

Elders currently imports all the ingredients for its crop protection and fertiliser distribution business from China. In addition, the company is also involved in the direct sale and distribution of Australian beef and lamb to Chinese consumers.

According to reporting in the Australian Financial Review, the government's select committee into COVID-19 and the security issues the pandemic raises will also look at the supply-chain risk around Chinese imports.

Treasury Wine Estates Ltd (ASX: TWE)

The Australian wine market is already under pressure following a harsh bushfire summer. Australia is the 5th largest exporter of wine in the world, with China accounting for the majority of the volume.

The operations of Treasury Wine reflects the wine industry's reliance on China, with Asia being the company's most profitable market. Treasury Wine relies heavily on demand from China, generating more than 40% of its total profits from Asia. The company's prestigious and luxury brands, such as Penfolds, are highly popular in the Chinese market and offer better profitability margins.

Treasury has already downgraded its earnings forecast due to the COVID-19 pandemic. Trade tensions could put the company under further pressure given its poor performance in other international markets.

Foolish takeaway

Although iron ore and coal are the largest imports to China, companies in these sectors have a greater pull in Chinese trade. In my opinion, companies and businesses that are heavily reliant on China for growth in the short and long term are the most susceptible to trade tensions.

Motley Fool contributor Nikhil Gangaram has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Treasury Wine Estates Limited. The Motley Fool Australia has recommended Elders Limited. 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 Scott Phillips.

More on Coronavirus News

Man with his hand on his face looking at a falling share price chart on a tablet.
Share Market News

ASX 200 stocks dive 2.4% in worst trading day since Ukraine crisis hit

It's not a good start to the week for the market.

Read more »

A woman looks nervous and uncertain holding a hand to her chin while looking at a paper cut out of a plane that she's holding in her other hand. representing the falling Air New Zealand share price today
Travel Shares

Borders just reopened so why is the Flight Centre (ASX:FLT) share price falling today?

Experts believe it may take several years for tourism levels to rebound to pre-pandemic numbers.

Read more »

A worker in hi vis gear holds his hand up saying no.
Coronavirus News

Own BHP (ASX:BHP) shares? Here's how the ASX 200 miner is battling COVID

Mining unions have not generally supported mandatory vaccinations.

Read more »

Female worker sitting desk with head in hand and looking fed up
Coronavirus News

Here's what Rio Tinto (ASX:RIO) boss says is 'causing some challenges' right now

The Omicron variant is spreading in Western Australia.

Read more »

A man wearing a mask punches the air with joy after getting a negative COVID result on a rapid antigen test.
Coronavirus News

Why are ASX COVID test shares climbing today?

COVID-19 tests are in focus again today.

Read more »

a girl stands in an apple orchard holding two red apples in raised arms with a happy, celebratory look on her face with a large smile and a pretty country background to the picture.

CBA reveals the Australian economy's leading state amid COVID surge

The states and territories have all been impacted by the pandemic.

Read more »

Rapid Antigen Test taking place.
Share Market News

Why is Ellume hitting headlines today?

Brisbane-based diagnostics developer Ellume is back in the headlines.

Read more »

A woman looks quizzical as she looks at a graph of the share market.
Share Market News

Inghams (ASX:ING) share price sinks as Omicron bites

Inghams shares are down as COVID hurts its operations.

Read more »