China stock pickers are winning big with liquor and pork in 2019

[SHANGHAI] In another wild year for Chinese stocks, there have been eye-popping gains for some and painful slumps for others.

Liquor makers and pork producers are among the best performers in 2019, while one of the country's biggest drugmakers had a record monthly loss after an accounting scandal.

In Hong Kong, early holders of smartphone maker Xiaomi exited after a lockup period expired.

After beating every other market in the world at the start of the year, Chinese stocks soured as trade tension with the US escalated. Volumes are down and the country's first bull market of 2019 came to an end after only 69 days. The Shanghai Composite Index, while still up 19 per cent, can't hold above the key 3,000-point level.

Here's a look at some of the best (and worst) stock picks of this year.

THE WINNERS

Kweichow Moutai: Up 66 per cent year-to-date. Investors love the world's most valuable distiller as China's middle class continues to splurge on its baijiu white liquor. Sales have climbed this year despite a slowing economy. That's helped Moutai shares flirt with the 1,000 yuan (S$197) level in recent days. Two other spirits stocks, Wuliangye Yibin and Luzhou Laojiao are among the best performers on the CSI 300 Index in the first half.

New Hope Liuhe: Up 136 per cent year-to-date. The spread of African swine fever is wiping out pigs in China at an alarming rate. So how have investors responded? By buying shares of meat processors and feed stocks on expectations pork prices will jump. That has given New Hope Liuhe a shot at its best year in more than a decade.

JL Mag Rare-Earth: 183 per cent gain in May. This stock went on a tear after Chinese President Xi Jinping toured its facilities, stoking speculation the country could use its dominance in the rare earths industry as a weapon in the trade dispute. JL Mag makes magnets containing rare earths that are used in products including electric vehicles and wind turbines.

CSC Financial: Up 174 per cent in Shanghai this year. This brokerage was among several that surged at the start of 2019 as investors bet the broader rally would boost their profits. The good times for CSC pretty much ended on March 8, when Citic Securities issued a sell rating for an insurer that had been a poster child for the broader rally.

Eastern Communications: 224 per cent rise over five weeks. For a while this year, any stock that could possibly be linked to the roll-out of next-generation wireless technology surged. State media hyping "the dawn of the 5G era" certainly helped. Things got so out of hand that Eastern Communications had to issue statements roughly once a week to tell investors that 5G was only a small part of its business. The stock has since pared its gain this year to around 100 per cent.

THE LOSERS

Kangmei Pharmaceutical: 56 per cent tumble in May. The maker of traditional Chinese medicines handed investors a few shocks this year, but perhaps the biggest was this one: the admission it overstated its cash holdings by US$4.3 billion using false documents and transaction records. One securities lawyer said that figure was unprecedented in China.

Xiaomi: US$6.2 billion in market value vanished in three sessions. The tech company's shares were bashed over a three-day period in January as investors rushed to sell when a six-month lockup period following its debut expired. The stock is down more than 40 per cent from its listing price.

Visual China Group: Lost $789 million in value in three days. How does a company in China infuriate investors so much they send the stock tumbling by the 10 per cent daily limit for three straight days? By claiming to have a copyright on photographs of the nation's flag and charging for their use. Visual China was apparently also trying to sell the first-ever photos of a black hole.

Kangde Xin Composite Material Group: Two monthly drops of more than 40 per cent. This maker of laminating film has troubles dating back to last year, when regulators started looking into its information disclosures. Things took a turn for the worse in January when it defaulted on a bond even though it had earlier reported cash levels sufficient to pay the debt 15 times over.

Ofilm Group: 45 per cent drop in three weeks. This smartphone component supplier to Huawei Technologies and Apple got off to a good start to the year. Then on April 26 it said a 1.84 billion yuan (S$362 million) profit for 2018 would actually be a 519 million yuan loss. Last month Morgan Stanley slashed its price target by a whopping 64 per cent, citing earnings uncertainty.

BLOOMBERG