Markets | Chinese tobacco giant’s ‘ridiculous’ rally hits nearly 500%

China Tobacco International (HK) Co. is having another wild day in Hong Kong. A morning surge yesterday took its three-week rally to nearly 500%, and then it fluctuated between gains and losses in the afternoon.

The international unit of state monopoly China National Tobacco – the biggest maker of cigarettes in the world – jumped as much as 44% yesterday, putting it up 484% from a June 12 initial public offering price of HKD4.88.

Even with the pullback, the company is easily the best-performing IPO in Hong Kong this year, data compiled by Bloomberg show.

“The price surge is ridiculous and it just indicates the crazy and irrational investment behavior,” said Dickie Wong, executive director of research at Kingston Securities Ltd. in Hong Kong. “The current valuation is far higher than what it deserves. It’s understandable that investors bet on Chinese consumers’ love of tobacco and liquor, but we should still keep a clear mind.”

China Tobacco’s run since its debut in Hong Kong has included a surge of 41% on June 13 and a 52% rally this Tuesday. Investors have been drawn in because of the scarcity of listed assets in China’s cigarette market, which remains enormous despite a gradual decline in the number of smokers.

“In that sense, it is very similar to Moutai,” said Lv Changshun, a fund manager at Beijing Dajun Zhimeng Investment Management Co., referring to liquor maker Kweichow Moutai Co. and the strong market position it holds in China, where it is one of the most widely held stocks. Moutai has climbed 73% in Shanghai this year. Bloomberg