Treasury Wine (ASX:TWE) drained

ASX falls but adds 10% in November, Treasury Wine (ASX:TWE) drained but Chinese economy improving

The ASX200 (ASX:XJO) dropped 1.3% to finish the month as markets digested the more aggressive approach taken by the Chinese on Friday. 

All sectors but IT fell with utilities and consumer discretionary the hardest hit on export concerns. 

Despite the fall, the market managed to deliver the strongest monthly gain since 1988, adding 10% following positive progress on three potential COVID-19 vaccines. 

All eyes were justifiably on Treasury Wine Estates (ASX:TWE) after news that the Chinese would be applying a tariff of 169.3% on all imports from the company. 

China represented two thirds of TWE’s earnings in Asia and 30% of total group earnings, so the tariffs is devastating. 

Management confirmed that demand from China will be ‘extremely limited’ and responded by announcing a six-step plan which included finding new markets outside of China, adjusting their grape sourcing and cutting cost. 

This is clearly something that should have been underway some time ago, rather than allowing the business to become so heavily reliant on one source of demand. 

According to China’s Anti-Dumping Regulations, the measure ‘shall not exceed four months’ which would take it to 28 March 2021, but ‘may be extended to nine months’; I’d expect the latter. 

Shares fell another 6.9% on the news, are down 50% for the year and at this point too uncertain to be considered ‘investment grade’.

Select Harvests (ASX:SHV) dividend cut 80%, dollar hits $0.74, Charter Hall (ASX:CHC) upgrades valuations

The Chinese economy continues to recover, for those able to access it, with manufacturing activity hitting the highest levels since 2017 and non-manufacturing activity breaching pre-COVID highs. 

The result, combined with the continued demand for Australian iron ore saw the AUD hit $0.74 cents ahead of the release of the RBA Minutes tomorrow. 

Almond producer Select Harvests (ASX:SHV) failed to capitalise on a record crop, with profit falling 53% to just $25 million as higher water costs and historically low almond prices continued to bite; such is life with agricultural producers. 

The result was an 80% cut in the dividend with shares falling 5.2% on the news. 

More positively, Charter Hall Group (ASX:CHC) announced that 89% of their Long WALE REIT (ASX:CLW) portfolio had been independently valued in 2020, resulting in a $150 million increase in their valuations. 

The REIT holds very long-term leased assets ranging from service stations to distribution centres which have shown great resilience in the current environment. 

Shares fell 1.2% on the news but the shares offer a unique income diversification opportunity for yield starved investors.

Oil pushes global markets lower, small caps deliver all-time record month, M&A ramping up

US markets started the week on a negative footing, the S&P500 falling 0.4% and the Dow Jones 0.9% after the oil price took a hit over the weekend. 

There are signs that supply agreements by OPEC may be under pressure from growing financial stress. 

The Nasdaq managed to eke out a positive session, adding 0.1% on the back of a string of merger and acquisition activity. 

Two deals of note were S&P Global Inc. (NYSE:SPGI) lodging a USD$44 billion takeover bid for IHS Markit, known for their production of key economic data including the Purchasing Manager Index (PMI) surveys. 

Shares finished 2.6% and 7.1% higher respectively. Similarly, Salesforce.com (NASDAQ:CRM) announced the purchase of Slack Technologies (NSADAQ:WORK) an enterprise communication tool. 

I’ve highlighted in this column regularly that the COVID-19 recession was only really impacting small businesses, with these deals confirmation that the big continue to get bigger and still offer opportunities for investors. 

Drew Meredith

Drew is publisher of the Inside Network's mastheads and a principal adviser at Wattle Partners.