The Bellamy's Australia Ltd (ASX: BAL) share price has rocketed 8% higher following a backdown by Chinese regulators on import rules.
Today's boost will be a welcome relief for the company because over the past year it's been anything but smooth sailing for the Tasmanian infant formula producer.
Bellamy's Share Price
Over the past six months, the Bellamy's share price is down 65% while the a2 Milk Company Ltd (Australia) (ASX: A2M) share price is up 42%.
What happened today?
About one year ago, the Chinese government sought to implement tough new changes to the way foreign goods were imported. The government wanted to cut out the use of cross-border trade on e-commerce giants like Alibaba and JD.com.
For Bellamy's and other companies targeting China, the changes meant that the suppliers of their ingredients would have to be certified, the companies would directly export their product to mainland China and shipments would be checked by customs.
Bellamy's used a daigou strategy to get its infant formula to China, whereby individuals would buy the product locally and take it to China to sell to parents. The tougher regulations all but cut out this channel — until now.
Ahead of Chinese premier Li Keqiang's trip to Australia this week to promote trade, the Chinese government has backed down on the import rules indefinitely.
Should you buy Bellamy's shares?
In my opinion, it may be too early to buy shares of Bellamy's Australia. While the changes are undoubtedly good news, it remains a high-risk investment given its balance sheet and the recent management uncertainty. While it undoubtedly has potential, I believe a2 Milk would make a better long-term investment.
