Is it time to buy A2 Milk and Treasury Wines for better China relations?

A Labor government is expected to improve relations with the world’s second largest economy. Could this be great news for two particular stocks?

| More on:
smiling child drinking milk from a glass, A2 milk share price rise, increase, up, A2 sales to china

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

The start of the COVID-19 pandemic seems like a long time ago now. 

If you cast your mind back to 2020, most of the developed world was in lockdown. The Australian government then not unreasonably called for an independent enquiry into the origins of the coronavirus.

But China took exception to this suggestion and started a wave of economic punishments designed to pressure and make an example out of Australia.

Massive losers from frosty Canberra-Beijing relations

Two of the biggest victims out of that breakdown in diplomatic relations were Treasury Wine Estates Ltd (ASX: TWE) and A2 Milk Company Ltd (ASX: A2M).

Heavy tariffs on Australian wines and a complete slowdown in daigou sales channels downgraded the companies’ earnings almost instantly.

Treasury shares are still 9% down from August 2020, and the A2 Milk stock price has plunged 76% since July 2020.

Yikes.

But a potential turning point in Australia-China relations came two weeks ago when Labor won the federal election.

Many analysts predicted that an ALP government would thaw Canberra’s frosty relationship with Beijing.

After all, it couldn’t get any worse.

Could a Labor government revive A2 Milk and Treasury Wine?

So one curious investor wondered whether it is now time to wade back into A2 Milk and Treasury Wine, ahead of better diplomatic relations with China.

Shaw and Partners portfolio manager James Gerrish gave his thoughts on this in his regular Market Matters Q&A.

He said his team agrees with that line of thinking.

“Your thoughts are definitely one of the reasons Market Matters is long Treasury Wines,” he said.

“But like A2 Milk, it has delivered a few false dawns over recent times.”

Gerrish suspected new Prime Minister Anthony Albanese can only improve Australia’s rapport with China.

“But the companies also need to start delivering results — hence the answer is a cautious yes.”

The broader analyst community seems to agree with Gerrish’s team that currently Treasury looks the better bet.

According to CMC Markets, six of 11 professionals rate Treasury Wine shares as a buy. Meanwhile, only three out of 14 analysts say the same about A2 Milk.

More on Broker Notes

Three Archer Materials scientists wearing white coats and blue gloves dance together in their lab after making a discovery
Healthcare Shares

Buy this ASX 200 company as its costs are actually falling: Firetrail

Rampant inflation means almost every company has to grapple with higher expenses. But here's an exception.

Read more »

An analyst wearing a dark blue shirt and glasses sits at his computer with his chin resting on his hands as he looks at the CBA share price movement today
Technology Shares

Here’s what Goldman Sachs thinks of the Xero share price

What's being said about Xero's shares this week?

Read more »

Broker looking at the share price.
Broker Notes

Morgans names 2 ASX shares to buy today

These ASX shares have been named as buys by analysts at Morgans...

Read more »

Broker looking at the share price on her laptop with green and red points in the background.
Broker Notes

Broker gives its verdict on the CSL share price post-FY22 results

Here's what this broker is saying about the CSL share price...

Read more »

a man sits in unhappy contemplation staring at his computer on his desk in a home environment, propping his chin on his hand.
Resources Shares

The ASX 200 share Firetrail just bought after brutal sell-off

If a stock has lost one-third of its value over the last four months, would you be courageous enough to…

Read more »

a man and a woman sitting in a technology related work environment high five each other while the man wears headphones around his heck and the woman sits in front of a laptop.
Growth Shares

Revenue up 169%: 2 ASX tech shares showing explosive growth

Growth stocks have roared back the past few weeks. Here is a couple that Cyan fund managers think can go…

Read more »

A man wearing a shirt, tie and hard hat sits in an office and marks dates in his diary.
Broker Notes

Is the BHP share price a buy after the miner’s FY22 results?

Is this mining giant a buy? Here's what this broker thinks...

Read more »

Red buy button on an apple keyboard with a finger on it representing asx tech shares to buy today
Broker Notes

Top brokers name 3 ASX shares to buy today

Brokers are feeling bullish about these ASX shares...

Read more »