Booze ban in home of baijiu sinks China liquor stocks

[HONG KONG] Chinese liquor shares, some of the best performers on the mainland this year, are sliding as Beijing ups the ante in its crackdown on vice ahead of the twice-a-decade Communist Party leadership reshuffle.

Government officials in Guizhou province - home to China's most-revered producer of baijiu liquor, Kweichow Moutai Co - have been prohibited from imbibing at official events, where alcohol can no longer be served, according to the official Xinhua News Agency.

Moutai, which rallied to a record last week, slipped as much as 2.8 per cent in Shanghai along with shares of its cheaper rivals Wuliangye Yibin Co and Jiugui Liquor Co. Another baijiu producer, Shanxi Xinghuacun Fen Wine Factory Co, declined the most in over a month.

"As the party congress is approaching, there have been some stricter guidelines to regulate government-related consumption," said Linus Yip, chief strategist in Hong Kong at First Shanghai Securities.

"Markets are worried that more restrictions could come and those guidelines may affect sales of booze makers." Still, given how far these stocks have rallied in 2017, "people may use this as excuse to take profit," he said.

With top party leaders due to meet in the fall, the government is clamping down on activities it's been tolerant of in the past.

Internet companies are being probed over video content containing violence or porn, and Beijing is moving to curb use of virtual private networks to access banned websites.

Xi Jinping's anti-corruption campaign, which has long focused on deterring gambling and graft among government cadres, seems to be training its attention to alcohol, with disciplinary watchdogs examining official spending on luxury liquor, according to notices posted on government websites earlier this month.

Despite today's losses, Moutai, which distills baijiu from sorghum and wheat in a small town in the Guizhou mountains, is still up 46 per cent this year, more than seven times the 2017 gain in the Shanghai Composite Index.

It was the best-performing mainland stock during the term of former president Hu Jintao, before selling off on the elevation of Mr Xi in November 2012.

BLOOMBERG