China Investor Who's Made 60% This Year Bets Big on Liquor

(Bloomberg) -- Wang Yuanyuan’s focus on the Chinese consumer has served her so well this year, she’s buying more of the same stocks.

A bet on sustained demand for liquor has helped her return 60% this year, more than any year since the Fullgoal Fund Management Co. consumer-focused fund started in 2014. Wang is making an even bigger bet on the stocks, more than doubling her holdings of Kweichow Moutai Co. in the second quarter, according to the fund’s latest quarterly report. She also boosted her shares of Wuliangye Yibin Co. and Anhui Gujing Distillery Co. by 71% and 40% respectively.

Moutai, Wuliangye and Anhui Gujing, which have all surged at least 60% since the start of the year, accounted for almost a fifth of the of her fund’s assets at the end of June. Wang says valuations of China’s liquor stocks are still reasonable given their high growth potential. Leading liquor firms will see a compounded annual growth rate of around 20% in earnings over the next two to three years amid strong retail demand, she said.

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“People will never stop their pursuit of a better life no matter how the economy fares,” said Shanghai-based Wang, who invests in a wide range of consumption-linked stocks including manufacturing and information technology, in an interview last week. "Consumers are constantly buying higher-end liquors.”

Wang’s big bet on liquor stocks comes amid concerns that the trade is getting too crowded, after they helped propel a gauge of consumer staples to the top of the CSI 300 Index this year. The liquor sector tumbled on Tuesday amid signs that competition is weighing on profitability. The staples gauge closed down 0.2% on Wednesday.

A different story

It’s a different story for breeding firms, however, whose gains also helped drive the winning performance of Wang’s fund in the first quarter.

Wang trimmed her holdings in the agriculture, forestry, animal husbandry and fishery sector, which includes pig breeders, to just 0.6% of fund asset in the second quarter, compared with 1.8% at the end of March and 14% at the end of last year. Hog prices may still rise as supply drops due to the African swine fever, but breeders’ stocks have already priced that in, she said.

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Wang’s next targets are in areas including health care, as she seeks firms that can deliver sustainable growth by leveraging on established advantages or innovation. She’s confident that consumption will remain a key driver of China’s domestic economy.

“People’s spending on food and drinks is less affected by macro environments,” said Wang. “That makes the consumption sector a source of steady returns.”

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