China Investor Hunting for Next Moutai Wins Big on Cocktails

(Bloomberg) --

In his search for the next Kweichow Moutai Co., Zhu Liang discovered a cocktail maker that has helped his flagship fund post a 72% return this year.

One of the most successful among the roughly 10 stocks Zhu holds is Shanghai Bairun Investment Holding Group Co., which makes pre-mixed cocktails, fragrances as well as flavors. The stock has more than doubled this year after nearly tripling in 2019 when the chief investment officer at Shanghai Danyi Investment Management Co. first bought it.

Zhu’s firm has a pool of 80-100 stocks to watch closely, with about 800 million yuan ($117 million) of assets under management. Zhu’s flagship fund has returned 185% since its inception in January 2018, according to fund tracker Shenzhen PaiPaiWang Investment & Management Co.

His strategy is to identify stocks that he thinks will offer high growth over a long period, and he references Moutai and Jiangsu Hengrui Medicine Co. as examples of stocks that were successful for investors who got in early. Both have seen their market value increase by more than 10 times over the past decade.

“Many long-term bull stocks have emerged in the consumer and technology sectors in the past, but the chances of that happening in finance and industrial sectors are low,” said Zhu. “That’s why I focus on industries that are more likely to foster long-term bull stocks.”

Other holdings include medical laboratory operator Guangzhou Kingmed Diagnostics Group Co., which has also doubled this year. Zhu said he invested in some pharmaceutical stocks recently, declining to elaborate on details.

China’s stock market has outperformed most global major indexes this year, amid signs of the economy’s recovery from the Covid-19 pandemic and supportive market policies from the government that have encouraged riskier trading. In a latest sign of economic recovery, China’s August composite purchasing managers’ index released by Caixin Media and IHS Markit on Thursday showed that the index rose to 55.1 from 54.5 in July, the fourth consecutive month of expansion.

The benchmark CSI 300 Index is up nearly 18% this year, with consumer staples, health care and information technology sectors the best performers. Guangzhou Kingmed rose 2.1% to a fresh high on Thursday, while Shanghai Bairun dropped 2.2%.

While there are some concerns over high valuations, Zhu says there are still bargains to be found, especially laggards in sectors such as home appliances and the dairy industry.

“There are some very good stocks in these industries that have underperformed due to short-term headwinds,” he said. “We are keeping a close eye on the inflection point to come.”

©2020 Bloomberg L.P.

With assistance from Bloomberg