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Chinese food producers have world's richest valuations

Hong Kong

CHINESE food and beverage stocks are getting more expensive than their peers worldwide following a blockbuster 2019 rally.

Pork prices have shot through the roof due to African swine fever decimating the pig population, while the trade war has also driven demand for domestic consumer stocks as investors seek assets relatively immune to tariffs. Excluding unprofitable firms and those with a market value below US$1 billion, six of the 10 food and beverage stocks with the highest price-earnings ratios globally are Chinese as at Friday, according to data compiled by Bloomberg.

The lofty valuations - pig breeder Luoniushan Co, for example, has a trailing price-to-earnings ratio of about 1,900 times - can fuel bubble concerns as they defy China's slowing economy and stray far from the modestly priced benchmark index. The Shanghai Composite Index has a PE ratio of 14.5 times.

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On a PE scale for food and beverage companies, the top spots are all taken by Chinese firms. The average ratio of the five is more than 600 times. The highest among companies globally with a market value above US$1 billion is California-based software developer ServiceNow Inc, which trades at more than 20,000 times earnings.

This clutch of Chinese food and beverage stocks is unlikely to sustain such high valuations, said Shen Zhengyang, a strategist with Northeast Securities Co. "The craziest period for investors to buy pork feeders is about to be behind us," Mr Shen said.

A gauge of 49 Chinese food and beverage stocks has surged 68 per cent this year, hitting a record high last week, while the Shanghai Composite has advanced 21 per cent. Hong Kong's Hang Seng Index is up just 3.3 per cent. BLOOMBERG