The a2 Milk Company Ltd (ASX: A2M) and Bellamy’s Australia Ltd (ASX: BAL) share prices have fallen close to 4% today on fresh news out of China.

About a2 and Bellamy’s

Bellamy’s is an ASX-listed organic infant formula and organic food company that was founded in 2004 in Launceston, Tasmania. It was the first company to offer an organic infant milk formula range to Australian mothers. It is now becoming a growing presence in the large Chinese market.

The a2 Milk Company is one of Australia and New Zealand’s largest infant formula producers and the leader in a2-only protein-based dairy products. It has operations in New Zealand, Australia, USA and China thanks to key supply and distribution agreements.

New Fears from China

The AFR reported this morning that a new action plan has been released from China’s National Development and Reform Commission, and while no English version is yet available, it’s reported that China may have plans to produce more infant formula domestically — rather than allow unlimited imports from companies such as a2 Milk and Bellamy’s.

Without all the details, it’s hard to say what the impact could be, but this could have the potential to hurt a2 Milk and Bellamy’s export ambitions.

Is China Important to A2 and Bellamy’s?

The short answer: China is very important.

Only last month, Bellamy’s shares shot up 16% in a day on news that it had received State Administration for Market Regulation (SAMR) approval for one of its products. Bellamy’s, in its 1H19 report, stated that there had been no Chinese-label sales in 1H19, but much of the report focused on the growth potential China could provide.

The a2 Milk Company is better established in China with a 5.7% share of the infant formula market according to its 1H19 report. China label revenue grew 82.6% for the half, compared to 11.1% growth in Australia. A2 Milk may have an advantage over Bellamy’s however because a2 is also experiencing significant growth in the US.

Buy or Sell?

I think it’s too early to say whether these companies are a buy, hold or sell without knowing the full details of this new action plan. Investors should be watching closely for further reports from China or the companies.

For other growth share ideas that might not be impacted so much by the China-US trade war, check out the companies in the free investing report below.

After searching through a market with over 2,000 shares, our lead expert investment analyst has narrowed it down to just 2 of his favourite small-cap pocket rocket share ideas in a FREE report to Rask Media readers.

Over the past five years, these two shares have gone from being 'tiny caps' to being serious contenders for the ASX 200. Investment in these types of companies have the potential to change lives.

Access the free report by clicking here now or enter your email below! Absolutely no credit card or payment details required.



Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

Disclosure: At the time of writing, Max does not own shares in any of the companies mentioned.