Australian stocks react to shifting US-China tariff tensions

Trade tactics

Investors remain vigilant amid ongoing trade negotiations between the United States (US) and China.

US-listed Chinese stocks

Investor sentiment was dented in mid-October when US President Trump threatened 100% tariffs on China in response to its export restrictions. However, risk appetite has rebounded somewhat as the Trump administration showed openness to a trade deal with China, while Beijing called for further talks.

Rarer earths

The core of the negotiations between Beijing and Washington revolves around export controls. The US is restricting the export of semiconductors and artificial intelligence (AI) chips vital to China’s tech industry, while China is limiting the supply of critical minerals and magnets that are essential to American manufacturing and defence sectors.

Iluka Resources (ASX:ILU)

Morgan Stanley analysts view news of further controls as a positive for Australian Securities Exchange (ASX)-listed Iluka Resources.

Iluka Resources daily candlestick chart

Shares have risen almost 55% year-to-date (YTD) and ASX Tradewatch data shows they’re in a strong bullish trend, confirmed by multiple indicators.

Iluka Resources historical trends and price targets

Analysts at Morgan Stanley say Iluka Resources's Eneabba rare earths refinery will produce a relatively high mix of heavy rare earths, including dysprosium and terbium, where China's export controls have been most strict.

Morgan Stanley is 'overweight' on Iluka Resources with a price target of $8.60, suggesting around 12% further upside.

Iluka Resources buy/sell indicators and analyst projections

Lynas Rare Earths (ASX:LYC)

News of the ongoing negotiations saw shares in Lynas Rare Earths rise to their highest level since 2011.

Lynas Rare Earths daily candlestick chart

They’re up more than 210% YTD and have also been boosted by reports that the Australian government is considering mandating floor prices for critical minerals and funding for rare earths as part of its proposed deal with the US.

Lynas Rare Earths historical trends and price targets

Yet Ord Minnett has a 'sell' recommendation on the stock with a $10 price target, believing it’s run too far, too fast.

The broker also notes that 'mania' seems to have engulfed rare earths operators, with investors looking for any excuse for a rally. Ord Minnett believes Lynas Rare Earths shares have left fundamental value far behind and that its recent memorandum of understanding (MOU) signed with a US magnet maker offered no real detail about what the deal may entail.

Lynas Rare Earths buy/sell indicators and analyst projections

The majority of brokers are negative on the stock, while the average target price, as surveyed by Refinitiv, suggests fair value around $14, meaning Lynas Rare Earths shares could drop more than 30% from their current level.

But Rick Squire from Acorn Capital suggests perhaps the recent run-up is justified.

Losing taste

Treasury Wine Estates (ASX:TWE)

One stock that may again bear the brunt of trade tensions is winemaker Treasury Wine Estates.

Treasury Wine Estates's shares plunged 15% on Monday to a 10-year low of $5.93, after the company warned that cautious spending by Chinese consumers during the mid-autumn festival had hit its earnings outlook. It marked the stock's steepest fall since the Covid-19 pandemic when trade tensions between Australia and China hurt investor sentiment, and its lowest close since September 2015.

Treasury Wine Estates daily candlestick chart

Shares have fallen more than 50% YTD and ASX Tradewatch data shows they’re in a long-term bearish trend as confirmed by multiple indicators, specifically in the longer term where the 200-day moving average is falling, showing little demand for the stock.

Treasury Wine Estates historical trends and price targets

Investors had hoped the end of China’s trade barriers on Australian wine would boost sales, but demand has lagged, partly due to a government ban on alcohol at official banquets. The uncertain outlook has also caused Treasury Wine Estates to pause a 200 million dollar share buyback.

Yet, having fallen so far, the average broker recommendation is a buy, according to Refinitiv data, with a $9.56 price target, suggesting shares could rally by 60%.

Treasury Wine Estates buy/sell indicators and analyst projections