March Quarter Wrap, Bellamy’s Sinks while A2 Soars

4 April 2017

Global stock markets slipped on the first day of the quarter and overall markets appear to be struggling to find a clear direction.
 
Looking ahead to the second quarter of 2017, analyst and investor focus is turning to whether political developments will cloud the brightening global economic outlook. President Donald Trump’s setback on his flagship health-care bill has cast a shadow on his broader fiscal agenda, while French elections could be a litmus test for the rise of European populism.
 
While mild profit taking saw the Australian market retrace on Friday, the month of March saw the Australian market (measured by the ASX200 index) rally +2.7%. At the same time the NZ market (measured by the NZX50 Index) ended 0.4% higher. This continued the recent trend of the ASX playing catch up with the NZX. Given the NZ market remains close to all-time highs and the recovery in mining stocks on the ASX, we had expected and continue to expect the NZX to lag the ASX in 2017.

In stock specific news, the woes continued for Bellamy's as it revealed it has failed to have its products registered for sale in China, now that its manufacturing plant in Victoria is changing hands. Chinese officials announced that from January 1, it would require infant formula products to be registered with the Chinese Food and Drug Administration (CFDA) which is a large market for the infant formula manufacturers products.

 
At the same time the share price of competitor A2 Milk (.NZ / A2M.AX) has rallied strongly.

While growth into China remains a major area of opportunity for both businesses moving forward, the challenging operating environment has impacted on all operators in the sector, although Bellamy’s has seen its share price plummet in recent times.
 
A2 Milk shares have been far more resilient, although we have noted that regulatory change is a key risk for A2 Milk's business. A2 Milk seems to be showing better resilience against what has not been the most supportive backdrop, and we think A2’s recent profit result speaks volumes about management agility and execution.
 
While we are positive on the dairy sector given our “dining boom” investment theme, the divergence in performance between Bellamy’s & A2 Milk clearly illustrates the importance of selecting the right company in an industry to play an investment theme such as infant formula/dairy.  
 
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Global stock markets slipped on the first day of the quarter and overall markets appear to be struggling to find a clear direction.   Looking ahead to the second quarter of 2017, analyst and investor focus is turning to whether political developments will

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