Mainland airline stocks climbed more than 6 per cent yesterday as investors bet appreciation of the yuan will reduce carriers' dollar- denominated debt.
China Southern Airlines, which will benefit the most from yuan appreciation in terms of net profit growth, rose 6.5 per cent to HK$3.75.
China Eastern Airlines, which has the highest debt to equity ratio among mainland carriers, closed nearly 7 per cent higher at HK$3.74, while Air China gained 6 per cent to HK$8.49.
A more valuable yuan will reduce debt from aircraft acquisitions because mainland carriers earn revenue from the local currency but repay loans in US dollars.
China Southern said it would make a 500 million yuan exchange gain for every 1 per cent appreciation in the yuan. China Eastern and Air China are estimated to post about 400 million yuan in exchange gains for every 1 per cent yuan appreciation, analysts say.
But the rally in airline shares on yuan appreciation speculation might be short-lived, said Kelvin Lau, a transport analyst at Daiwa Capital Markets. 'Rallies driven by yuan appreciation won't last longer than a couple of days,' Lau said. 'It's more profit-taking than buying.'
Airlines continued to see growth in air traffic last month, although profit rose at a slower pace.