SINGAPORE Reuters -- Investors hoping to cash in on the boom in Chinese travel after nearly three years of epidemic lockdowns are moving into airports, hotels and duty-free operators, and away from airlines that are subject to fluctuating fuel prices and more intense competition.
In December, China lifted airline stocks and online travel agencies like Trip.com Group Ltd., which was the first wave of bullishness as they abandoned its zero-COVID policy.
Thailand has re-emerged as a favorite destination for Chinese travellers and investors.
We were active earlier in terms of domestic travel, lodging space and airports, and we've done quite well," said Elaine Tse, portfolio manager at Allspring Global Investments. Tse said the firm had locked in some profits from the bets.
We are optimistic on a rebound in regional and international travel and continue to get exposure through airports and airplane leasing. Since the start of November, the airports, such as the Airport of Bangkok and Shanghai International Airport, have underperformed the big three Chinese airlines Air China, China Eastern and China Southern, leaving room for further gains in the former.
The investors say that airline stocks are not only expensive, but their earnings tend to be volatile and susceptible to swings in oil prices.
The shares of Air China, China Eastern and China Southern have gone up between 7% and 17% in the past four months, with Air China and China Southern trading above their 5 year average forward earnings, according to Refinitiv data.
China Tourism Group Duty Free Corp trades at 28 times its forward earnings, well below a 5 year average.
Local airlines are expected to fare better than regional airlines such as Cathay Pacific, Singapore Airlines and Qantas because Chinese airlines kept more widebody planes and staff ready for the battle for Chinese travelers.
Inbound and outbound tourist numbers will reach more than 90 million by the year 2023, which is close to 31.5% of pre-pandemic levels. Three Chinese airlines reported big losses last year, and are expected to swing to profit in the year 2023, according to Refinitiv data.
The Chinese airline's profits are expected to peak next year as international traffic makes a full rebound.
Vey-Sern Ling, senior equity advisor at Union Bancaire Privee, said we need to be patient and wait for the earnings to kick in.
Hilde Jenssen, head of fundamental equities at Nordea Asset Management, bought some consumer discretionary companies exposed to tourism, such as duty-free operators in hopes of capturing the secondary effects of the reopening.
Chinese consumers have so far been cautious, despite the fact that they were betting at the beginning of the year that sky-high Chinese household savings, which went to 17.8 trillion yuan $2.61 trillion last year, will lead to a post-pandemic splurge.
Jenssen said that some consumer discretionary companies showed they were stocking inventories in anticipation of strong demand.
It might not be the big bang everyone was hoping for at the beginning of the year but there is definitely pent up demand.