Treasury Wine Estates Shares Fall on New China Tariffs (ASX:TWE)

At the time of writing, the share price of Treasury Wine Estates Ltd [ASX:TWE] is trading at $8.57, down 7.15%.

The Chinese Ministry of Commerce announced on 27 November it will apply tariffs on Australian wines ranging from 107%–212%.

ASX TWE Share Price Chart 1

Source: Optuma

Treasury Wine and China

The Chinese market for Australian wines is massive. It accounted for 39% of Australian exports in the first nine months of this year.

With Australia–China relations being at an all-time low, both nations have started to punish the other commercially.

In 2018, Australia became the first nation to ban the Chinese tech giant Huawei from being involved in the national 5G network, citing national security reasons.

China retaliated placing tariffs on Australian beef, barley, coal, lobsters and now wines.

China carried out a year-long investigation into anti-dumping, looking at wines being sold in China at prices alleged to be lower than in Australia.

TWE announced they expect that while the provisional measure announced remains in place, demand for its portfolio in China will be extremely limited.

In such a demanding year for business this comes as another blow to Treasury Wine Esates.

The company is implementing a response plan:

  • Driving incremental growth across TWE’s global priority markets: — Reallocation of Penfolds Bin and Icon range from China — which represent 25% of TWE’s annual global Penfolds allocation volumes — to other key luxury growth markets where there is unsatisfied demand, including Asian markets outside of China, Australia, the US, and Europe.

 

  • Accelerated investment in sales and marketing resource and capability across these other luxury growth markets to drive incremental demand and expand the distribution footprint of Penfolds;

 

The impact on Treasury Wine’s share price

ASX TWE - Treasury Wine Estates Share Price Chart 2

Source: Optuma

China is a massive market for Australian wines and Treasury in particular.

The news of the tariffs come as a crippling blow in a difficult time already considering the impact of COVID-19.

From the high in January the share price fell 52.81% during the COVID-19 outbreak.

Price slightly recovered before coming back to test this level.

The tariff news may see price fall below this level of $8.40 to $5.62.

If price moves to the upside, then the level of $10.69 may become the focus.

Treasury Wine Estates is one of the world largest wine makers, but in the current climate it looks to be facing multiple headwinds. I doubt it’s a share to buy and if you are holding it, it may be time to let go and move on.

As TWE falls back in share price, there are still some alternative deep value stocks on the ASX. Check out our free report: ‘Three ‘Deep Value’ Stocks to Consider in a Post-Lockdown World’. To download a copy the free report, click here.

Regards

Carl Wittkopp

The Rum Rebellion


Carl Wittkopp writes for The Rum Rebellion and has a diploma in Financial Planning. He specialises in the technical analysis of stocks.


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