The start of the COVID-19 pandemic seems like a long time ago now.
If you cast your mind back to 2020, most of the developed world was in lockdown. The Australian government then not unreasonably called for an independent enquiry into the origins of the coronavirus.
But China took exception to this suggestion and started a wave of economic punishments designed to pressure and make an example out of Australia.
Massive losers from frosty Canberra-Beijing relations
Two of the biggest victims out of that breakdown in diplomatic relations were Treasury Wine Estates Ltd (ASX: TWE) and A2 Milk Company Ltd (ASX: A2M).
Heavy tariffs on Australian wines and a complete slowdown in daigou sales channels downgraded the companies’ earnings almost instantly.
Treasury shares are still 9% down from August 2020, and the A2 Milk stock price has plunged 76% since July 2020.
Yikes.
But a potential turning point in Australia-China relations came two weeks ago when Labor won the federal election.
Many analysts predicted that an ALP government would thaw Canberra’s frosty relationship with Beijing.
After all, it couldn’t get any worse.
Could a Labor government revive A2 Milk and Treasury Wine?
So one curious investor wondered whether it is now time to wade back into A2 Milk and Treasury Wine, ahead of better diplomatic relations with China.
Shaw and Partners portfolio manager James Gerrish gave his thoughts on this in his regular Market Matters Q&A.
He said his team agrees with that line of thinking.
“Your thoughts are definitely one of the reasons Market Matters is long Treasury Wines,” he said.
“But like A2 Milk, it has delivered a few false dawns over recent times.”
Gerrish suspected new Prime Minister Anthony Albanese can only improve Australia’s rapport with China.
“But the companies also need to start delivering results — hence the answer is a cautious yes.”
The broader analyst community seems to agree with Gerrish’s team that currently Treasury looks the better bet.
According to CMC Markets, six of 11 professionals rate Treasury Wine shares as a buy. Meanwhile, only three out of 14 analysts say the same about A2 Milk.
