What effect does a trade war have on the stock market
Monday, September 06, 2021
Scott: Welcome to the IMFG investment update. My name is Scott Douglas. I'm a director at IMFG. I have here with me, Dr. Steve Garth. Steve is on our investment committee. Steve, there's been a lot of talk about trade wars in the media lately and what's been happening. What's going on? What's the impact that this is likely to have on Australia and our economy and our share market?
Steve: Yeah. Thanks, Scott. Well, certainly in the last year, China, in particular, has targeted some of Australia's industries with a [inaudible 00:00:36] sanctions. So for example, the lobster industry, the beef industry, and the wine industry have all been hit by these sanctions from China.
Till recently, China accounted for 96% of export sales of southern rock lobster. So, losing that market has been devastating for business.
Beef was Australia's biggest agricultural export. Last May, China suspended imports from Australia's largest cooperatively owned and abattoir.
And, Scott, an industry close to your heart is wine. China accounted for more than 40% of all Australian wine exports and 50% of red wine exports before the tariffs hit. So that's fallen to near zero now.
Scott: So, Steve, presumably being invested in one of those industries has had an impact if you've been investing in beef, or wine, or the lobster industry. What are we, sort of, seeing having an impact on the individual stocks versus the market itself?
Steve: Yeah. So, that's right, Scott. Obviously, the individual stocks that are associated with those industries are going to get hit. The chart up here shows Treasury Wine Estate. And you can see how that stock has been affected by the announcement that China was potentially going to put tariffs on Australian wine. So, being invested in a single stock has not been so good. And you compare that to the overall market, the overall market seems to be going pretty well. So it really speaks to the fact that, yes, if you're associated with those industries that have been hit or if you're invested in those particular stocks, it's not so good, but it hasn't affected the overall stock market. That seems to be going ahead as if nothing has changed.
Scott: Right. So being invested across the various asset classes and in a diversified portfolio is gonna reduce that risk?
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