Photographer: Nelson Ching/Bloomberg

China Warning Wipes $6 Billion From Stock Loved by Goldman

Updated on
  • Xinhua says Kweichow Moutai shares should rise at slower pace
  • Liquor maker has more than doubled in Shanghai this year

It’s not often that China’s official media agency takes aim at a specific stock.

But that’s what happened to Kweichow Moutai Co. on Thursday, when Xinhua News Agency said shares in China’s biggest liquor maker should rise at a slower pace. Within hours, the company had made its own stock exchange filing, says it hopes investors are cautious in making decisions, and that analysts’ share price targets and valuations in the market are “overly high.” The result was a plunge of as much as 5.8 percent in the Shanghai-listed shares Friday, their biggest decline in over two years.

Moutai has more than doubled this year, with Goldman Sachs Group Inc. alone raising its target on the company 11 times, as investors embraced the company’s profitable strategy of targeting the mass market. Moutai, which earlier this year overtook Diageo Plc as the world’s most-valuable distiller, is now trading at 36 times estimated earnings, its highest valuation in seven years.

“Xinhua is concerned that a runaway rally in heavyweight like Kweichow will hamper the stability of the overall market,” said Hao Hong, chief strategist at Bocom International Holding Co. in Hong Kong.

Since a debt-fueled stock market bubble burst in 2015, wiping out $5 trillion of value, Chinese policy makers have acted to restrain excessive speculation in equities -- including a crackdown on aggressive investments by insurers. The result has been an unusually tepid market, with volatility falling to the lowest level in decades.

Analysts are bullish on Moutai, with the stock attracting 26 buy ratings, two holds and zero sells. Goldman, which last increased its price target this week, sees the shares rising a further 28 percent over the next 12 months. Moutai’s net income more than doubled in the third quarter to 8.7 billion yuan ($1.3 billion).

Moutai closed down 4 percent Friday, erasing $6 billion in value. Other liquor maker shares also declined. Luzhou Laojiao Co. slid 2.3 percent, paring its rally this year to 109 percent. Wuliangye Yibin Co. dropped 1.8 percent.

The state has been trimming Moutai holdings as shares surged. China Securities Finance Corp.’s stake fell to 1.56 percent at the end of September from 2.35 percent at end-2016, exchange filings showed.

— With assistance by Amanda Wang

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