China Stocks Too Hot for a Cold Beer to Douse: Gadfly

China’s stock market is so hot that you can sell investors cold beer in January, when it’s freezing.

Shares in Tsingtao Brewery Co. are up 15 percent this year in dollar terms while China Resources Beer Holdings Co. and Beijing Yanjing Brewery Co. are also beating the broader market.

Behind the surge are promises to raise prices. Earlier this month, Tsingtao said it was planning a cost hike for some but not all of its products, “with an average of such proposed price increase of under 5 percent.” Days later, China Resources Beer said it too was moderately adjusting its prices to mitigate rising material costs.

Average January temperature in Beijing

-4.3 degrees C 

Investors are betting the brewers can adjust prices without alienating consumers. In a nation where people are shelling out 1,499 yuan ($233) for a bottle of Moutai, will paying a few cents more per pint make much of a difference? A case (24 cans) of Tsingtao costs just 115 yuan on Recent industry consolidation may also give China’s brewers the ability to charge more. Of the nation’s 33 regional markets, half are dominated by either Belgium’s Anheuser-Busch InBev SA or a local player, according to UBS Group AG analyst Christine Peng.

Some market watchers, however, don’t believe price rises will go unnoticed. Kweichow Moutai Co. may be able to charge customers more and get away with it, but most Chinese beer brands are interchangeable. That makes it easier for competitors to steal market share.

Here, investors and analysts disagree. The increase in Tsingtao’s share price has outpaced any upward revision of its earnings.

Is demand for beer indeed inelastic?

Unfortunately, we won’t know the answer to that for a while. Winter is the low season for beer so a price increase isn’t likely to be reflected in sales numbers until at least the June quarter, and those financial statements aren’t out until August.

Truth is, investors are looking for any excuse to buy value stocks, or companies that look cheap in Hong Kong’s buoyant market. Of the 58 Chinese firms on the Hang Seng Index and the Hang Seng China Enterprises Index, the average expected gain in stock prices, using sell-side-analyst targets, is less than 10 percent, Gadfly calculations show.

In a fast-rising market, investors tend to shoot first and ask questions later. I may have been a Hong Kong bull since late last year, but this drinking game looks frothy even to me.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Shuli Ren is a Bloomberg Gadfly columnist covering Asian markets. She previously wrote on markets for Barron’s, following a career as an investment banker, and is a CFA charterholder.

To contact the author of this story: Shuli Ren in Hong Kong at

To contact the editor responsible for this story: Katrina Nicholas at

©2018 Bloomberg L.P.


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