(Yicai Global) Oct. 29 -- Stocks of baijiu, a Chinese liquor distilled from sorghum and other grains, that have been quite strong in the recent bear market fell sharply today after leading Chinese distillersKweichow Moutaiand Wuliangye Yibin released their third-quarter performance reports.

The two companies share prices fell throughout the day to reach the 10 percent daily limit down bourse rules dictate.

Baijiu shares plunged because thethird-quarter reports ofGuizhou province-based Moutai and Wuliangye fell short of expectations, industry insiders told Yicai Global.

The drop of baijiu stocks shows that the market is slowing down its demand growth for high-end baijiu such as Moutai and worrying about weak future demand, said baijiu analyst Cai Xuefei.

Moutai wrung out operating income of CNY52 billion (USD7.5 billion) in the first three quarters, an increase of 23 percent on the same period last year, with net profit of CNY25 billion in a 24 percent rise. The company's operating income went up 3.2 percent in the third quarter, but this was lower than its first-half results, while net profit attributable to shareholders was 2.7 percent. The firm's operating income climbed more than twofold in last year's third quarter, its report shows.

Wuliangye's third-quarter show was slightly better than that of Moutai, though it fell afoul of the same trend as the growth of its operating income and net profit both dipped.

This year's growth was indeed low compared with the same time last year, a Moutai insider conceded to Yicai Global, but it was still benign in the first three quarters.

The company's slowdown largely resulted from sluggish shipments. Moutai's flagship product achieved operating income of CNY42.3 billion (USD6 billion) in the first three quarters. Moutai infused about 22,500 tons of baijiu into the market in the first three quarters, Yicai Global found, compared with 22,100 tons in the same period last year -- not a significant increase.

Moutai baijiu put into the market was about 8,202 tons in the third quarter, down from the 9,644 tons in the same period last year, and lower than the 10,000 tons the company anticipated, other estimates show.

Continuing retail price rises of high-end baijiu have begun to suppress market demand, which had maintained relatively rapid growth since 2015. Prices of high-end baijiu rose too, and the retail price of Moutai's product has even passed the historical high point of the previous cycle of price increases before 2012 in some regions.

A sharp drop of Moutai's stock price reflects serious market concerns about the company's future performance, baijiu dealers who declined to be named told Yicai Global. Speculative stockpile is driving retail prices ever higher and increasing the likelihood of an ultimate price crash.

Moutai's third-quarter growth fell to single digits for the first time and this is why stocks fell today, Yang Shen, chief securities analyst with Orient Securities, told Yicai Global. Investors' confidence in baijiu stocks continuing relatively strong has thus been shaken.

The main index of the A-share market has continued to decline since the beginning of the year, so the market valuation of distillery shares that have not experienced significant price adjustments during the period has been high, Shen noted. Some institutions will dump baijiu shares once a company's performance falls lower than anticipated, he added.

One cannot say the baijiu bubble will break, but the market is adjusting its expectations and so it has slipped from its previous high, Shen said.

Editor: Ben Armour