Prices of a prestigious Chinese alcohol brand are falling, stoking worries about economic growth. “Flying Fairy,” a 53% alcohol from Shanghai-listed Kweichow Moutai , saw wholesale prices drop by more than 5% in a week. Those prices are now down by more than 30% since a Sept. 2021 peak, Nomura analysts said in a research report, noting that during a boom in housing prices from 2015 to 2021, Flying Fairy’s wholesale prices surged by nearly 360%. Also known as “Feitian Moutai,” the brand of traditional Chinese baijiu liquor, made from red sorghum, is a status symbol used for government gifts and seen at high-level business deals and weddings. That’s also given older bottles collector’s value . It’s less clear whether a decline in an apparent proxy on Chinese wealth means the company itself will be significantly hit. Wide margins Morningstar senior equity analyst Jennifer Song pointed out that Kweichow Moutai has maintained wide profit margins and that it has “plenty of room” to raise its ex-factory prices. Song said recent conversations with institutional clients revealed no change on their view of Moutai. Despite a 13% drop so far this year, Kweichou Moutai remains the largest stock by market capitalization in the Shanghai composite, making it a large part of exchange-traded funds tracking mainland Chinese stocks. By contrast, PetroChina , the second-largest company in the Shanghai composite by market value, is up more than 40% year-to-date. Stock market leaders have changed every few years, and companies on the upstream side such as in copper, coal and crude oil have recently performed well, said Ye Yuhua, manager at Guangzhou-based Liangdian Private Capital. He agreed the drop in wholesale prices won’t have a big impact on Moutai’s immediate earnings. But he said there is an effect on investor sentiment about the future — whether Moutai will have to reduce its supply to the market if a iglut of nventory builds, and starts getting sold in the next six to 12 months. Anecdotes about the economy haven’t helped boost expectations about high-end baijiu demand. The Nomura analysts noted industry data showed existing home prices dropped 26.5% across 50 major Chinese cities from a peak in July 2021 to May 2024. Duty-free sales in the tropical Chinese island of Hainan fell in May, for a nearly 30% drop in the first five months
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