Chinese Chaos

Wow, what a dirty day Tuesday turned out to be. If you’re heavily invested in milk, vitamins (or broadly, any company that currently makes a packet sending Aussie food products to China) then you already know where this is going.

Basically, the Chinese government (or more specifically, the thrillingly named Finance Ministry) decided that any & all goods sent into the country in private parcels should be subject to the equivalent taxes and levies of goods in the same import classification. Broadly speaking, this is bad news as lots of the great sales in milk powder achieved by our mates Bellamy’s (ASX:BAL) and A2 Milk (ASX:A2M) are enabled by domestic consumers sending product directly to friends or relatives in China. The Australian milk powder black market might not sound very impressive, until you find out that some formulas were selling for over 300% of their retail price, with our mates Bellamy’s and A2M in very high demand. Even when taking into account the shipping cost that’s still good business. Except for parents who needed to buy milk powder to feed small children in Australia, in which case it was very frustrating and upsetting business.

Our vitamin producers were also getting in on the action, with Chinese demand for our pills and supplements almost as good as that for our baby food. Producers like Blackmores (ASX:BKL) and Vitaco Holdings (ASX:VIT) were laughing all the way to the bank as they tried to satisfy China’s growing demand for traditional favourites like colostrum and squalene. Yes, those are real things that people actually eat, and yes, a quick Wikipedia search will confirm that they are as gross as they sound.

Below are some of the end of day results for terrible Tuesday.

  • ASX:BAL down 10.75% to $8.88 (Oh, the delicious irony)
  • ASX:BKL down 6.76% to $165.00
  • ASX:A2M down 6.45% to $1.60
  • ASX:VIT down 10.45% to $1.50

Blue Lake Invest has always been a strong advocate for our Aussie dairy and vitamin producers, and I’d like to note that I’m still predicting continued growth in my holdings of ASX:BAL and ASX:A2M. Despite Tuesday being a very shitty day in the world of ASX listed producers of Chinese consumer staples I’m going to call out the positives as I see them, which are:

  1. Any bubble dynamic has received a sharp correction, which should help stabilise prices in the future. Let’s be honest, any stock that has grown at the same rate as ASX:BAL or ASX:BKL would have to have been doing something pretty special to justify such an increase in market value. Bellamy’s and Blackmores in particular were probably a little bit too heavily influenced by market expectations of future earnings, so it might be quite healthy to reign that in a bit.
  2. These are still strong, growing companies with solid future earnings potential. This clip off the share price probably represents a great buying opportunity. People will still buy Aussie milk powder in China for the same reason that Aussies bought BMWs instead of Ford Falcons; they might have been pricier and imported but the quality more than justified the extra spend. Also, Chinese milk powder sounds incredibly dodgy, so it’s unlikely that parents will want to risk missing out on the good stuff from Oz.

Blue Lake Invest remains great value at $0.00 .