UBS takes the spirit out of China’s distillers by downgrading Moutai, other baijiu brands
- The rare downgrade of Kweichow Moutai’s stock underscores analysts’ concerns about the impact of an economic slowdown on China’s consumer spending
UBS Group downgraded the ratings on Kweichow Moutai and other Chinese major liquor distillers as capacity expansions and destocking strategies create a supply overhang, at a time when consumer demand is waning in the world’s biggest spirits market.
In a research note, the Swiss bank lowered its recommendation on Kweichow Moutai to neutral from buy and also cut the ratings on Wuliangye Yibin, Luzhou Laojiao and Jiangsu Yanghe Distillery by a notch to neutral.
China’s traditional liquor, or baijiu that is distilled from grains, is battling macro economic headwinds from a sustained property market crisis and the bruising impact of tariff increases from its leading trade partners, it said.
In downgrading the shares of the world’s largest distiller by market value, UBS stands out among major investment banks. Citigroup has maintained a buy rating on the stock since 2016, while HSBC has kept its buy recommendation unchanged since 2018, according to Bloomberg data.
“Insufficient demand is a key issue in China’s economy now,” said Du Zhengzheng, an analyst at China Development Bank Securities in Beijing. “With the expectations for demand low, more policy support will be needed to be put into implementation in the future.”
