Why is the A2 Milk share price underperforming on Tuesday?

The A2 Milk share price is underperforming on Tuesday…

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The A2 Milk Company Ltd (ASX: A2M) share price has failed to climb with the market today.

In afternoon trade, the infant formula company's shares are down 1.5% to $5.18.

This compares unfavourably to the ASX 200 index, which is up over 1% this afternoon.

Why is the A2 Milk share price underperforming?

The weakness in the A2 Milk share price appears to have been driven by the release of an update out of smaller rival Bubs Australia Ltd (ASX: BUB) on Monday.

That update revealed that trading conditions in the massive China market are particularly tough right now.

Bubs' management explained:

Across the infant formula category, a significant number of brands have oversupplied the market, including local Chinese brands. This has created a significant decline in margin across all distribution partners. In addition, the cost of doing business has also increased on cross-border e-commerce, particularly as it relates to advertising spend. The category issue was exacerbated through a subdued result during the 6.18 shopping festival, and the oversupply by other brands is expected to continue through to the upcoming Double 11 festival.

This appears to have sparked fears that A2 Milk's recovery could be under threat in the key market.

The good news is that investors won't have long to wait to find out if that is the case. A2 Milk is holding its annual general meeting in a couple of weeks on 18 November. At the event, the company is likely to provide an update on trading conditions and its performance during the key Double 11 festival (Single's Day event).

Stay tuned for that update!

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended A2 Milk. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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