I feel that there is some cognitive dissonance in your post.
On the hand, you feel that the joy of learning, creativity, kindness etc are more important at this age than learning academic skills.
On the other hand, you have put him into a preschool you think is "very very good" which clearly places an emphasis on academics as opposed to a playbased, developmental approach - preschoolers expected to read five word sentences? "Highest math group" introducing fractions? Of course in this environments kids will already be hyper aware at preschool age of who is doing well in the areas that count and who does and does not fit in.
Your child is obviously socially very attuned and has realized that his mastering so easily stuff that other kids, very naturally at this age, are to struggling with or are developmentally unable to master at all at this age might make other kids feel bad or resentful, particularly if he is apprehensive the teachers might make a big deal out of it. He has also realized that his teachers expect him to be excited about "highest level math" and does not want to hurt their feelings...kind? Compassionate. Socially advanced? Check. Joy of learning? Uh, no. Not if, at this age, it already appears to be clearly set up as a competition.
There are a lot of things that annoyed me about my HG+ DS9's preschool, but the completely nonchalant way they accepted that my kid was a fluent reader at five impressed me - particularly as one of them said "wow, he's reading almost better than my third grader!" Said totally without rancor or envy - high marks for that one, think of the potential for resentment there. DS was not socially attuned at all, and did not mind showing all he knew to anyone who couldn't get away, but in preschool, it simply led to him reading to the little ones and every one being appreciative. Being a aplay based/developmental program, I did not expect them to in any way challenge him academically (frankly, they probably couldn't have), in fact he was there for the social experience, period.
So, that was us. You want different things for your kid out of his preschool experience, and I get that. However, it appears you chose a somewhat competitive academic experience (for preschool standards) and it turns out your kid doesn't want to compete for fear of hurting others feelings...and maybe also out of not wanting to perform for others, it's normal for kids that age to simply refuse. it does not sound so much like something to "nip in the bud" but to help him outgrow.
And I'd critically examine this preschools program and value system as to whether it really offers the growth you'd want for your kid.
