Quantamental: Baijiu: Trading a Zero-Sum Market Through IRS Signals: China (PRC) | Food & Beverages

Research evidence excerpt

Quantamental: Baijiu: Trading a Zero-Sum Market Through IRS Signals: China (PRC) | Food & Beverages

China (PRC) | Food & Beverages EquityJulyResearch15, 2026

Quantamental: Baijiu: Trading a Zero-Sum

Market Through IRS Signals

In this series, we leverage AI to systematically screen our data universe

for trading signals. Based on our analysis, we propose a long Moutai/short

Wuliangye (WLY) after periods of monetary tightening. Our thesis is that

tighter liquidity conditions may reinforce Moutai's competitive advantages

and drive market share gains within an increasingly zero-sum baijiu market.

Portfolio construction and trading strategy. We focus on a pair trade that is long Moutai and

short WLY. To capture liquidity conditions, we use the VWAP of a basket of interbank interest

rate swaps (IRS), with a particular focus on the short end of the curve, primarily the 1-year tenor.

We back-tested a trading strategy that goes long the pair when the IRS rate rises significantly

above its moving average and switches to a short position when the rate falls significantly

below its moving average.

Since 2015, our back-test suggests that this approach would have generated higher returns

and improved Sharpe relative to a simple buy-and-hold strategy (Chart 1). The baijiu market

has entered an ex-growth phase, according to government data. As a result, we recommend

that investors shift their focus toward long-short strategies that capitalize on potential market

share shifts among industry participants.

Over the past decade, relative stock performance within the baijiu sector has been increasingly

driven by changes in market share, particularly the share gains achieved by Moutai relative to

its peers. Importantly, "market share" in this context extends beyond end-consumer demand.