Chinese booze stocks tumble; Maotai loses ￥14 billion in market cap thanks to government crackdown on waste

公款禁买高档酒 茅台市值一天缩水142亿 (Public money forbidden from buying expensive liquor, Maotai loses ￥14 billion in market cap in one day)

Although the government crackdown on bureaucrats buying high-end liquor will crimp sales, liquor stocks are still sought after by institutional funds. Some analysts believe the decline will bring in new buyers and others say the shares are reasonably priced. However, the estimated P/Es in the chart below look awfully high to me and those earnings are based on bubble-fueled spending. Jiugui (third from bottom on the chart), for example, saw earnings increase 142% on a 72% sales increase last year. (Jiugui means drunkard in Chinese)

This chart shows the stock symbol, name, closing price, change for the day, estimated P/E and return for the year. Maotai is the first stock listed.

As this one year chart of Maotai shows, yesterday's drop wasn't the worst suffered by the firm. News items do not drive share prices, social mood and investor psychology determines the direction and magnitude of price moves. Perhaps the move should have been bigger, since this is a major development, but investors may not believe the ban will take effect. Similar to how housing shares shrugged off the government's restrictive housing policies until the effects were clear to all.