Liquor and pickles the new flavours for investors as China’s consumers tighten purse strings

The so-called consumption downgrade trend has seen shares of makers of regular priced goods outshine those of premium food and drink brands

PUBLISHED : Tuesday, 14 August, 2018, 9:00am
UPDATED : Tuesday, 14 August, 2018, 9:00am

Shares in Chinese companies selling regular priced foodstuffs including baijiu liquor and pickles are among the top performers this year, as consumers steer away from premium brands amid rising household expenses and the country’s expected economic slowdown.

The so-called consumption downgrade trend has seen investors favour stocks like Shenzhen-listed Beijing Shunxin Agriculture, a maker of the baijiu fiery grain liquor. It has become the best performing distiller on the domestic stock market, and is among the top 10 best performing mainland China shares as of year to date, excluding newly listed companies.

Its shares have added 118 per cent since the beginning of the year, and are trading at nearly 40 times the price to earnings ratio at 41.8 yuan per share. In comparison, high-end distiller Kweichow Moutai’s shares have fallen 3.5 per cent and those of Wuliangye Yibin 21 per cent over the same period, even though the two reported 40 per cent and 39 per cent rises on profit respectively in the first half.

“There is a popular concept emerging recently, which is the so-called consumption downgrade trend, referring to people’s preference for goods that offer better value for money but not necessarily those that have better function or quality,” said Cao Lingyan, an analyst at Shanxin Securities.

“The main cause for this could be rising property prices, which have squeezed the room for people to spend, especially for those living in the first- and second-tier cities,” said Cao, adding that the actual purchasing power of residents in lower tier cities, where property prices are still at a lower level, was stronger.

Moutai sells one of its core products, Feitian Moutai, at around 1,499 yuan (US$218) per 500ml bottle, while Wuliangye prices some of its baijiu at around 1,000 yuan. Shunxin sells its Niulanshan Erguotou brand at only 7 yuan per 100ml, making it especially popular among blue-collar workers.

Meanwhile, Chongqing Fuling Zhacai Group a maker of spicy and sour Sichuan pickles, a popular side dish on southern Chinese families’ dining tables, has surged more than 54 per cent since the beginning of the year to the end of July, becoming the second best-performing stock in the food and drink sector on Chinese bourses this year. It has over a 20 per cent share of the country’s packaged pickle market.

The other three companies among the top five best-performing shares during the period were Jiangsu King’s Luck, also a baijiu brewer, Tory Bread, which sells mid-priced bakery products, as well as hotpot ingredient maker Fujian Anjoy Foods. The share prices of all three companies have added more than 45 per cent each this year as of the end of July.

Alongside China’s rapid economic growth in recent years, housing prices have surged and now far exceed the average income of ordinary residents. The country’s average per capita disposable income stood at around 26,000 yuan, but property prices in its most developed cities such as Beijing and Shanghai were at more than 50,000 yuan per square metre as of June, according to housing information provider Anjuke.