The risk with small companies is that they may never get big. Australian investors jumped into several small companies last year, making them a lot larger in terms of market value. Now, they worry that revenues and profits may not catch up — especially where growth is closely linked to China.
Blackmores, the health supplement producer, is one such name. Last year it returned 470 per cent against a mining-dominated local benchmark that was down nearly a tenth. On Tuesday, it took a pounding on confirmation that China is raising taxes on foreign goods bought over the internet and shipped through free trade zones.
Chinese shoppers are price conscious, so news that the cost of goods they buy over the internet might rise is of concern. Bears also suggest this may herald more general regulatory scrutiny of such wares. But, as JPMorgan points out, the effective change so far is minimal. On transaction sizes most applicable to ordinary retail buyers, the tax rises from 10 per cent to 12 per cent — still lower than the 17 per cent value added tax payable in Chinese shops. There are also exemptions for certain goods. Phillips Capital says none of Blackmores’ products are affected.