The long tail of sluggish Chinese growth and subdued consumer spending has reached the Australian sharemarket, driving a steep decline in stocks with significant exposures to the world’s second-largest economy.
Among the biggest losers are The a2 Milk Company, which is down 29 per cent in the last 12 months, while its manufacturing partner, New Zealand’s Synlait Milk, has seen shares listed on the ASX halve in that period. By comparison, the broader consumer staples sector is up 11 per cent.
Asia, and China in particular, is a key market for The a2 Milk, which supplies infant formula in both English and Chinese-language branding. The company is battling separate supply issues and has reported a 14 per cent slide in Chinese-label infant formula revenues in the last financial year. Revenues in Asia made up about 75 per cent of the $NZ1.975 billion ($1.59 billion) that the company booked over the 12 months.
Hedge funds have been targeting The a2 Milk amid a wider slowdown in retail spending in China and Australia, with short interest, or the proportion of shares that have been bet on a share price fall, surging from about 3 per cent in January to more than 7 per cent by late September.
Bubs Australia, a rival, smaller infant formula manufacturer, has dropped by a quarter over the last year. The company sourced about 20 per cent of its $111.9 million revenues from China in the last financial year.