ASX200 in focus
One of the general rules of thumb in trading is that what's good for China is good for Australia. Chinese growth boosts Australia's economy (ASX200) and strong Chinese data benefits the AUD. Why? The reason is simply that around 30% of Australia's economy is made up from its trade with China. Hence the Australian economy itself is often times traded as a proxy (alternative) for China's economy. It is a straightforward trade. However, that trade may be under threat if current tensions keep building.
The latest departure of Australia's last 2 foreign correspondents in China is the latest episode in a series of spats that broke out after Prime Minister Scott Morrison called for an independent inquiry into the origins of COVID-19. Beijing has since suspended shipments of barley, stopped some beef imports and launched an anti-dumping investigation into the wine industry.
According to Jeffries analysts China'a actions may hit sectors covering more than half the weight of the ASX 200. A Bloomberg opinion piece highlights that banks may suffer if a slowdown in Chinese immigration weighs on house prices. Tourism linked stocks like Qantas, Crown Resorts, and Star Entertainment could suffer from a drop in overseas visitors if tensions with China become more significant.
China has the ability to significantly hurt the Australian economy. The biggest concern here is that investors might stop looking at Aussie as a proxy for China. This is not the case right now, but one geo-political development to have on your radar.
