If the Chinese Government approves tariff cuts Treasury Wine Estate Ltd could be a stock to closely watch, writes Wealth Within chief analyst Dale Gillham.
Last week, the Chinese Ministry of Commerce announced a proposal to remove tariffs on Australian wine exports. If approved, this would be a game changer for Australia's wine industry, as it would benefit Australian winemakers and the industries that support them.
Rather than discussing the nature of the proposal, let’s look at who will benefit the most from this.
One such company is Treasury Wine Estate Ltd. It is a global wine company with consumers in more than 70 countries, including China. In fact, what’s exciting for Treasury Wines is that before the tariffs were introduced in 2020, its profits mainly came from the Chinese market. Removing the tariffs would significantly increase the company's profitability and greatly impact the share price.
That said, we do need to consider the bigger picture, so playing devil's advocate, I see the economic risks China has been facing, which is concerning for future wine sales in China.
It has high youth unemployment and financial issues in some of its largest institutions, as we have seen in the property sector in recent years. So I wonder whether the people of China would be in a hurry to buy their favourite bottle of Penfolds.
Since Treasury Wines reported last month, the share price has risen more than 9% and looks a little stretched.
Given this, I expect the stock to pull back in the short term, although it may trade sideways and consolidate until the final decision on the tariff is made.
If the Chinese Government approves the tariffs being cut, I recommend watching this stock closely, as a run back up to $14.80 could well be on the cards.
Dale Gillham is the chief analyst at Wealth Within and the international bestselling author of How to Beat the Managed Funds by 20%. He is also the author of Accelerate Your Wealth—It’s Your Money, Your Choice, which is available in bookstores and online at www.wealthwithin.com.au