China Stocks Drop on Concern Over Highest Valuations in Years

(Bloomberg) -- Chinese stocks fell the most in almost three weeks, as investors questioned whether the highest valuations in 13 for the CSI 300 Index make sense.

The stock benchmark fell 1% at the close on Monday after hitting its highest level since 2008 last week. A measure of consumer staples was among the worst performers on Monday after surging 23% last quarter, the most since early 2019.

Chinese equities last week topped the highest level reached during the peak of a bubble five years ago, and the recent advance has investors wondering if the gains are justified. The CSI 300 trades at 16 times estimated forward earnings, compared to a multiple of more than 19 back in 2015.

“There is growing worry that there is a bubble in popular stocks,” said Wang Zhuo, a fund manager at Shanghai Zhuozhu Investment Management Co. “We have warned our clients about baijiu and other consumer staples.”

Investors are also weighing signs the economic recovery is stabilizing versus worries over the coronavirus pandemic. China reported 85 local confirmed infections on Jan. 10, including 82 in the northern province of Hebei that borders the capital. Shijiazhuang, a city of 11 million, was locked down and its residents tested en masse for the coronavirus.

• The worst performing consumer staples shares on Monday were Muyuan Foods Co., Anhui Gujing Distillery Co. and Tongwei Co., which all lost at least 6.6%. Wuliangye Yibin Co. dropped 5%, the most since July last year.
• The CSI 300’s consumer staples subgauge is trading at 31 times times estimated forward earnings, higher than the level during the peak of the bubble in 2015.
• The ChiNext Index retreated 1.8%, the most since Dec. 22. The tech-heavy gauge last week closed at its highest since 2015.