The stock value of Synlait Milk Ltd [NZX:SML] fell by over 3% today.
Synlait Milk holds the exclusive rights as the manufacturer of the popular dairy product for The a2 Milk Company [NZX:ATM]. Both companies cooperate heavily on exports to China. As a result, the success and performance of the two stocks are closely aligned.
Synlait has a market capitalisation of $1.83 billion. At the time of writing, the share price is at $10.21.
A2 milk has a market capitalisation of $7.63 billion. At the time of writing, the share price is at $10.39.
Why has the Synlait Milk share price decreased today?
Various key people within the a2 Milk Company have been involved in a significant sell-off of their shares in the final quarter in 2018.
On Wednesday, a2 Director Peter Hinton disclosed his sale of 25,000 shares.
This comes just a few weeks after a2 CEO Jayne Hrdlicka sold all her shares in the business.
In addition, on 26 September, Scott Wotherspoon (former a2 Chief Executive for UK and Europe) and Shareef Khan (Chief Operations Officer for a2) also sold portions of their shares.
This recent sell-off has been interpreted negatively by the market and has caused jitters among investors. This general anxiety has spilled over into Synlait stocks as well.
A secondary issue is the new regulatory environment that China intends to enforce for cross-border e-commerce (CEBC). From 1 January 2019 onwards, Kiwi exporters will be required to adhere to higher quality standards when selling and distributing their products in China.
Again, this has created additional unease amongst Synlait and a2 shareholders.
So where could the Synlait Milk share price go from here?
Despite strong growth over the last year for both Sylait and a2, the recent sell-offs have caused volatility to share prices. This hasn’t been helped by introduction of new Chinese regulations.
However, once the mood normalises and Kiwi exporters come to grips with the new Chinese regulatory environment, the share price for Synlait could recover and maintain its upward trajectory.
For more information, please read our recent issues regarding a2 Milk and Synlait:
- Milking China: A Kiwi Conundrum
- A2 Milk: Cash Cow or Spoilt Milk?
Editor, Money Morning New Zealand