World: Diageo shares trading at their lowest since 2020 amid trouble with Chinese trade

Shares at Guinness maker Diageo are now trading at their lowest level since November 2020, in the face of weakening sales and trouble with Chinese trade, Yahoo Finance reported on January 6.

The share price of the British multinational took a two per cent tumble this morning, as news of China’s ‘anti-dumping’ investigation into brandy from the European Union scared investors off.

A probe was launched by officials of the Asian country on January 6 after a complaint was filed back in November by China’s liquor association.

It solidifies an escalating spat between Beijing and Brussels — initially kick-started by European Commission president Ursula von der Leyen who claimed that global markets were “flooded with cheaper Chinese electric cars”.

Von der Leyen launched an investigation back in September, sparking retaliation from the Asian superpower.

Russ Mould, investment director at AJ Bell, said: “Anti-dumping is an import duty charged in addition to normal customs duty and can be levied when a foreign company sells an item significantly below their normal price.

“This represents yet another point of tension between China and the West and suggests geopolitical developments could be a key worry point for markets in 2024.”

A clampdown in China will serve as another blow for Diageo who has struggled in recent months due to a slowdown in demand, felt most prominently in the US market.

Just before Christmas, the spirits to whiskey supplier downgraded its forecast for the year as a result of cash-strapped Latin American and Caribbean shoppers steering clear of top-shelf liquor.

“Macroeconomic pressures in the region are resulting in lower consumption and consumer downtrading,” the company said at the time.

“We now expect organic operating profit growth for the first half of fiscal 2024 to decline compared with the first half of fiscal 2023.”

The region makes up nearly 11 per cent of Diageo’s net sales value.

Diageo, whose long-serving boss Sir Ivan Menezes died unexpectedly last June, did however say it was seeing continued momentum in European and Asia Pacific markets.

The firm’s struggles to shift top-level alcohol in the US are not isolated.

Back in October LVMH said its wine and spirits division continued to struggle with revenues down 10 per cent year-on-year to €4.6bn (£3.7bn).

Sales for its Hennessy cognac, which goes for around £40 per bottle, were particularly impacted by the challenging economic environment in the US.

Analysts at Jefferies have been flagging this slowdown, describing it as a “normalisation after two years of strong growth”.

They explained: “Between 2020-22, the US spirits industry grew circa eight per cent vs pre-pandemic run-rate of 4-5 per cent.”

“The industry is currently going through a period of normalisation to circa two per cent.”

“2024 is also likely to be a year of growth below med-term 4-5 per cent with spirits-based ready-to-drinks weighing on distilled spirits growth, alongside increased promo activity,” they added.

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