a2 shares plunge as Chinese regulator flexes its muscles

New Zealand's main share index fell half a percent with a2 Milk plunging more than 6% when the Australian stock exchange opened at midday on fears of Chinese regulation.

Monday, July 26th 2021, 6:35PM

by BusinessDesk

The S&P/NZX 50 Index fell 63.09 points, or 0.6%, to 12,673.23. Turnover was $136 million.

Infant formula marketing firm, A2 Milk Company led the market lower as it dropped 6.4% to $6.68. The stock has fallen more than 10% across the past three trading sessions down from $7.43.

That's still well ahead of analyst valuations, such as Jarden which values the stock at just $6.10.

A Citi analyst recently reiterated their ‘sell’ recommendation, warning investors the milk brand may struggle to win back customers after the pandemic disruption.

The research note also warned there was an elevated risk around A2 Milk’s ability to renew its registration with China’s market regulator next year. The registration allows the company to sell its baby formula in Chinese retail outlets.

Investors may have been spooked today as the Chinese regulator hit private education companies and a music-licensing business owned by Tencent with regulations that limit operations.

Tencent Holdings, which is listed on the Hong Kong stock exchange, fell more than 7% today while some education stocks dropped by more than a quarter.

Other stocks on the NZX were not sold off so viciously, although a risk-off mood was apparent.

SkyCity Entertainment Group dropped 2.5% to $3.15, Napier Port Holdings declined 1.8% to $3.24, and A2 supplier Synlait Milk fell 1.6% to $3.71.

Travel stocks continued to weaken today, with Air New Zealand down 1.3% at $1.485 and Auckland Airport off 1.4% at $7.05.

Fonterra Shareholders' Fund units bucked the trend and climbed 1.9% to reach $3.80, the day’s biggest gain, and US-focused exporter Skellerup Holdings climbed 1.8% to $4.97.

The kiwi dollar was trading at 69.71 US cents by 3pm in Wellington, largely unchanged from 69.78 cents on Friday.

The trade-weighted index was at 74.15 at 3pm, from 74.10 on Friday. The kiwi traded at 94.79 Australian cents from 94.50 cents, 76.96 yen from 76.87 yen, 59.22 euro cents from 59.26 cents, unchanged at 50.69 British pence, and 4.5195 Chinese yuan from 4.5150 yuan.

Tags: Market Close