Add milk powder to long list of stocks facing China policy risk

MAKERS of infant formula joined the growing list of stocks hurt by regulatory risk in China as policymakers show increasing interest in people's health and lifestyles.

Dairy products manufacturer China Feihe led losses in the sector on Friday, slumping as much as 9.3 per cent in Hong Kong after the Xinhua News Agency reported that some experts are concerned by marketing that is making mothers choose milk powder over breastfeeding.

China Mengniu Dairy slipped as much as 5.9 per cent while Shenzhen-listed Beingmate declined 2.9 per cent. The report sent ripples as far away as New Zealand, where A2 Milk Co dropped 2.8 per cent. A2 gets 40 per cent of its revenue from China and other Asian markets, according to data compiled by Bloomberg.

With Chinese policymakers seeking to reverse the nation's slowing birth rate and improve people's health, traders were quick to react to the state media report. Also fresh in their minds was the government's shock ban on tutoring companies making profits, which triggered a wider selloff that evaporated nearly US$1 trillion in market value.

"The jitters are part of the aftershock from the private education clampdown," said Wang Daixin, a fund manager at Bristlecon Pine Asset Management, who added that he believes the market has overreacted.

Chinese companies have growth potential by expanding their market share in the baby formula sector and the industry's "development has been very healthy since safety scandals years ago", Mr Wang said.

Yet many investors remain concerned that more areas will come into the crosshairs of government. That's prompting them to increase scrutiny of reports in the Chinese media and to scour President Xi Jinping's old speeches for potential targets.

Earlier this week China's biggest tech company, Tencent Holdings, led another stocks rout after reports decried the "spiritual opium" of online games.

Friday saw another scare in this industry, with Kuaishou Technology plummeting as much as 12 per cent after an influential state-backed newspaper urged tighter regulation of Internet video content.

The declines in stocks linked to baby formula on Friday came amid a drop of about about one per cent in China's CSI 300 Index. Hong Kong's Hang Seng Index was little changed. BLOOMBERG