Animal spirits


China’s baijiu sector seems to be more than recovering from President Xi Jinping’s clampdown on graft and extravagance. We reported in May last year that Kweichow Moutai’s share price had hit an all-time high of Rmb260 per share. As of this week it is trading at Rmb345 with a market value of Rmb434 billion ($63 billion).

The strong performance could be partly explained by the Shanghai-Hong Kong Stock Connect. The trading platform allows foreign investors to buy into Shanghai-listed large caps such as Moutai. Since the stock link commenced in late 2014, Moutai’s shares have more than doubled. Shanghai’s key index climbed less than 20% during the same period. Indeed, China Daily noted last week that consumer staples was the only sector on the main stock exchanges with positive returns last year. And according to the Bernstein Global Spirits Guide, high-end baijiu is so profitable that the top four brands are estimated to account for 27% of pre-tax earnings for the global spirits industry.

Sales were previously seen as a proxy for corruption (see WiC172). But since Xi took office baijiu makers have been forced to restructure their businesses. The turnaround, China Daily says, is also buoyed by rising middle class incomes. It reports that surging demand for the spirit to toast in this year’s Lunar New Year has seen classic Moutai increase almost 40% in price to Rmb2,000 per bottle this week.

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