ASX 200 (XJO) set to rise – Treasury Wine & Bega shares in focus

The S&P/ASX 200 (INDEXASX: XJO) is set to bounce higher at the open this morning. Here’s what’s making headlines.

ASX delivers more gains

The ASX 200 finished higher for the fourth straight week, adding 1.0% despite falling 0.5% on Friday. The vaccine-led recovery means the index is sitting on the best gain in over 30 years whilst leading our global peers having now controlled COVID-19. Cyclical sectors were the week’s winners, led by energy and materials, as signs of a sustained economic recovery saw the oil price rally and the iron ore price remain around USD$130 per tonne.

BHP Group Ltd (ASX: BHP) finished the week 7.1% higher after falling 1.2% on Friday, with high-quality iron ore seemingly immune from the worsening trade dispute with China.

On the other hand, Bega Cheese Ltd (ASX: BGA) has been a beneficiary of the Australian Government’s decision to ban a Chinese buyer from the purchase of the Lion Dairy and Drinks business, with a successful capital raising sending the Bega share price 9.8% higher on Friday.

Whilst international borders remain firmly closed, the opening of domestic borders buoyed the travel sector, with Webjet Limited (ASX: WEB) a key beneficiary for hotel and regional holiday bookings, growing 7.8% in the week.

Featured video: Australian Finance Podcast November Q&A

Treasury Wine in the firing line

The worsening relationship between China and Australia has seen another major casualty with Treasury Wine Estates Ltd (ASX: TWE), owner of the ubiquitous Penfolds brand, falling 11.3% on Friday before entering a trading halt. Investors had gotten wind of the impending imposition of tariffs on Australian wine imports in China.

It is clear the Chinese Government is seeking greater self-sufficiency, with Australian wine the latest target. The government is set to apply tariffs of between 107% and 212% to exports that currently equate to some 40% of Australia’s $1.25 billion in annual exports and a major source of Treasury Wine’s revenue. It is becoming increasingly evident that Australia’s relationship with China will be the most powerful theme of 2021 and beyond.

Turning to the US, news that President Trump will vacate the White House when the Electoral College confirms Joe Biden was received positively on an otherwise quiet day. The S&P 500 finished 0.2% higher and the Nasdaq another 0.9%. Similarly to Australia, US markets are closing in on the best month in several decades, the weekly returns finishing at 1.6% and 2.5%, respectively, with energy and oil prices a key driver.

My three key takeaways from the week

With AGM season coming to an end, pressure on management and boards to be accountable for major strategic decisions has come into focus. This week it was shareholders in IOOF Holdings Limited (ASX: IFL) questioning the price and justification for the purchase of MLC’s financial advice business, particularly in light of the increasing regulatory pressure on the sector.

The week saw the delivery of the Victorian State Budget, delivered with the tried and true ‘fiscal stimulus’ focused once again on the construction and housing sectors. The reduction in stamp duty and increased first home buyer’s grant, combined with mortgage rates below 2%, suggests the only way is up for property in the short-term. The bigger question, however, is whether this sort of spending has the same multiplying effect it used to, particularly when our CBDs and the businesses that inhabit them remain deserted.

The week also saw the end of what has been one of the more remarkable runs for IPOs in recent history, with the listing of law firm HWL Ebsworth and Fantastic Furniture both dumped. It was clear that investors had become warier as the flood of listings continued, with any business operating in e-commerce seeking eye-watering multiples. Small-cap IPOs remain a high-risk proposition despite the market recovery.

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Disclosure: At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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