Foreign Investors Are Falling Out of Love With China’s Top Stock

(Bloomberg) -- China’s largest stock Kweichou Moutai Co. is rapidly losing appeal among overseas investors, with a recent selling spree helping to wipe out a year-to-date gain of 30% as the nation’s most prominent momentum trade unwinds.

After surging to a record high on Feb. 10, the $380 billion liquor maker is currently trading near the same level at which it closed 2020. With the selloff, foreign ownership of Moutai has fallen to 7.6%, its lowest level in over two years, according to data compiled by Bloomberg. It was the most-sold stock by foreigners between February 19 and March 17, with nearly 8.3 billion yuan ($1.3 billion) worth offloaded.

Moutai’s multifold gains over the past several years have been driven by institutional money, with fund managers piling in for fear of losing out among peers because of insufficient exposure. However that same momentum has worked against the stock as investors race to sell the most expensive corners of the market amid surging U.S. Treasury yields damp risk appetite.

Shares of the company, which makes the popular Chinese white liquor baijiu, are trading at 46 times estimated earnings for this year. That’s well above their five-year average of 30 times and the 27 times multiple of global alcohol giant Diageo Plc.

“Anyone who has any sense of responsibility toward clients’ returns would not be rationally picking up shares now,” said Dong Baozhen, fund manager at Lingtongshengtai Asset Management. “Though some are still religiously holding onto the shares, I don’t see why anyone would find the company captivating at current valuations.”

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As the largest component of numerous Chinese stock indexes, the decline in Moutai has dragged on the overall market. The CSI 300 Index is down 5.4% so far in 2020, while the Shanghai Composite Index has lost 3.1%.

The slide in Moutai has also taken a toll on local fund managers. The E Fund Blue Chip Selected Mixed Fund, whose largest holding is Moutai, is down more than 20% in the past six weeks.

©2021 Bloomberg L.P.