Dampened spirits: Kweichow Moutai's liquor prices hit by weak consumer spending - South China Morning Post

Prices of China’s most famous liquor, Mao-tai, are falling, as weakening consumer spending spills over to high-end discretionary goods.

The average wholesale price of Flying Fairy, the flagship product of Kweichow Moutai with 53 per cent alcohol content, recently dropped below 2,400 yuan (US$330) per bottle, a decline of about 8 per cent over the past two months to a three-year low, according to industry data.

Mao-tai, which is used in state banquets to entertain foreign dignitaries, was once hailed and hoarded by speculators as an infallible investment that was impervious to economic downturn. Now, dwindling demand for the spirit underscores the urgency for Beijing to boost a flagging job market and resolve a property market crisis, a key conduit for Chinese citizens to preserve their wealth that is closely linked to consumption.

“With a falling property market, you obviously feel the pain of shrinking wealth and would steer clear of some discretionary consumer goods you enjoyed before, such as expensive liquor,” said Wang Chen, a partner at Xufunds Investment Management in Shanghai.

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The falling prices of Mao-tai will weigh on overseas traders investing in China’s onshore yuan-denominated stocks. So far, Kweichow Moutai has been one of their favourite holdings, with Invesco, BlackRock and Vanguard Group among the company’s major shareholders, according to Bloomberg data.

The stock greatly benefited from China’s consumption upgrade fuelled by fast economic growth, which saw consumers snapping up luxury handbags from Chanel and Louis Vuitton to upscale baijiu at home and abroad. The price of Mao-tai Flying Fairy had jumped almost tenfold over the past two decades.

Kweichow Moutai, which is based in southwest Guizhou province, had fetched annual returns of almost 30 per cent from its listing in 2001 to the end of last year, compared with a 1.3 per cent gain in the Shanghai Composite Index in the same period, according to Bloomberg data.

The company is capitalised at 1.95 trillion yuan, making it the world’s largest distiller and the most valuable company listed in China, the data shows.

Shares of Kweichow Moutai closed unchanged at 1,555 yuan on Friday in Shanghai. The stock has declined 9.9 per cent this year, underperforming a 3.2 per cent gain in the benchmark CSI 300 Index.

The decline in Mao-tai prices was amplified by speculators, who offloaded their hoardings to avoid further losses when prices began to ease, according to China Galaxy Securities. Demand is likely to stabilise after the speculative overhang is removed, it said.

Consumer spending, one of the key drivers of Kweichow Moutai’s shares, is missing. The average tourism spending per trip during the recent three-day Dragon Boat Festival was 14 per cent below the pre-Covid level in 2019, according to Nomura Holdings. Home sales, another key barometer of consumer confidence, continued to decline in 21 major cities in the first week of June.

“It doesn’t seem to be a good entry point to buy Kweichow Moutai shares for now,” said Wang at Xufunds. “We need more time and data to ascertain whether the price drop is simply a blip, because of normal inventory clearance, or a medium-term inflection point for Mao-tai products.”

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