Changpeng Wan
Key Takeaways
- The baijiu sector has declined over 10% year-to-date despite bullish markets
- Major fund managers show diverging strategies: some reducing exposure while others double down
- Sector valuation now trades near 5-year lows with dividend yields nearing 4%
- Persistent inventory pressures and weakening business demand pose recovery challenges
- Top analysts debate whether baijiu qualifies as dividend stock amid transformation
The Chinese baijiu sector, once celebrated as a crown jewel of China’s ‘core assets,’ finds itself in unfamiliar territory as 2025 unfolds. Against a backdrop of broader market gains, this traditional market darling has slumped dramatically, with the CSI Baijiu Index declining over 10% year-to-date through July 21. Only two stocks—Shanxi Xinghuacun Fen Wine and Luzhou Laojiao—managed marginal gains, while others faced double-digit declines, including Yingjia Gongjiu plunging over 20%. This underperformance shakes faith in a sector that long commanded premium valuations, now caught between fading traditional purchasing patterns and struggling to capture elusive ‘new consumer’ spending.
Market Performance: Anatomy of a Decline
The CSI Baijiu Index’s 10.5% year-to-date contraction contrasts starkly with broader market trends. Multiple factors converge: according to industry distributor data monitored by China Galaxy Securities, commercial baijiu inventories approached 150% of normal levels by mid-Q2—the highest accumulation since 2016. Simultaneously, corporate banquet spending—traditionally accounting for 40% of premium baijiu consumption—declined approximately 15% year-over-year amid tightened expense policies.
Individual Stock Vulnerabilities
Sector casualties include Yingjia Gongjiu (-23%), Shui Jing Fang (-21%), and Jinzigu Liquor (-20%), reflecting vulnerabilities of mid-tier brands facing slowed tier-3 city demand. Export figures compound concerns—customs data shows baijiu overseas shipments grew just 4% YoY in H1 versus 18% growth in 2024.
Fund Manager Tactics: Diverging Paths
Second-quarter disclosures expose contrasting strategies among China’s investment leaders who previously championed baijiu investments.
The Retreaters
Hu Xinwei (胡昕炜) took dramatic reduction steps, cutting holdings in baijiu giants by 60-70% within Huaxia Consumer Sector Fund:
- – Kweichow Moutai: Slashed 13.79%
- – Luzhou Laojiao: Reduced 72%+
- – Wuliangye: Decreased 65%+
‘We see structural growth in emerging consumption sectors,’ explains Hu (胡昕炜) in disclosures. ‘Traditional liquor faces policy pressures amplifying short-term challenges.’ Similarly, long-time baijiu advocate Jiao Wei sold holdings across GujingGongjiu and Jinjiuyuan while elevating Moutai to his top position in YinHua Food & Beverage Fund.
The Confidence Holders
Contrarian moves emerged from Zhang Kun who boosted allocations across China’s premium liquors:
- – Wuliangye holdings increased 9.8%
- – Shanxi Fen Wine exposure raised 5.3%
Consequently, Zhang’s E Fund BlueChip Fund now counts baijiu stocks holding four of its top five portfolio positions—reflecting conviction that ‘valuations already price-in profit deterioration.’ Retail investors joined through passive holdings, pushing ChinaAMC Baijiu Index Fund assets to 550 billion shares (+7% QoQ).
Sector Evolution: Transition to Dividend Appeal?
Years of valuations normalization fundamentally reshaped the sector’s investment profile.
Regional Demand Contrasts
Provincial consumption patterns increasingly diverge—Guangdong saw premium baijiu sales slide 18% while Jiangsu maintained stable volumes through festival marketing strategies. Discretionary trade-downs expanded nationwide: from RMB25B($3.5B) purchasing pools, nearly 27% shifted toward moderately-priced alternatives.
Fiscal Proof Points
Wind data highlights transformative statistics:
- CSI Baijiu PE Ratio: 18.31—near five-year bottom (3.13 percentile)
- Dividend Yield Core Portfolio: 3.9% (90 percentile five-year comparison)
‘Contemporary valuations offer compelling shareholder returns relative to long-term timelines,’ asserts ChinaAMC’s Hou Hao. ‘Premium baijiu dividends now exceed 4%—maturing into verifiable dividend alternatives.’
The Road Ahead: Strategic Inflection Points
Critical moves will determine trajectory in H2:
- Actions Required: Temporarily halting shipments to recalibrate inventories
- Channel Reinvestment: Targeted consumer subsidies rebuilding consumption
- Product Diversification: Accelerated capsule/lower-mix product launches
Yang Siliang’s selective investment approach combines Shanghai Electric High Dividend plays with Shanxi Fen Wine bets for balanced portfolio exposure. ‘Short-term optimism shouldn’t distract from structural reforms needed,’ Yang clarifies via BaoYing quarterly filings.
Faith Versus Fundamentals
As Hou Hao frames it: ‘Unprecedent pressures test commitment—yet resilient brands protect fundamentals.’ The shifting narrative now pivots toward viable shareholder yields and maturity amidst declining blind investment conviction. For strategic allocators, contemporary valuations increasingly offer compelling entry points absent during previous exuberance—if companies deliver requisite portfolio modernization bridging traditional consumption patterns toward sustainable finance benchmarks.
