Tourists
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A-shares

Chinese hotel and tourism stocks to benefit from more visitors due to weak yuan

The offshore yuan fell 0.66 per cent against the US dollar last month after a drop of 5.67 per cent last year.

PUBLISHED : Tuesday, 02 February, 2016, 9:25am
UPDATED : Tuesday, 02 February, 2016, 9:25am

The tourism and retail A-share stocks in mainland China will be the biggest winners from a depreciation of the yuan, according to analysts.

Ken Wong, client portfolio manager at Eastspring Investments (Hong Kong), said whenever any currency depreciated, residents would prefer to travel within the country instead of going out of the country.

This was what had happened in Japan over the past two years, when the currency dropped substantially against the US dollar. Forty per cent of tourist spending in Japan now came from Japanese travelling within the country.

“We believe the same would happen in the mainland China when the yuan has traded cheaper against the US dollar, it is natural for the mainlanders to travel within the country instead of going outside of the country,” Wong said. “This would benefit the A-share sector in hotel, tourism and consumption sectors.”

The offshore yuan depreciated against the US dollar by 0.66 per cent last month after a drop of 5.67 per cent last year.

Wong said that since the Hong Kong dollar was pegged to the US dollar, the yuan was also depreciating against the Hong Kong dollar at a similar rate.

China International Travel, as the largest domestic duty free operator in China, will benefit from the government’s continued relaxation of import duties designed to stimulate domestic consumption
Lian Yan and Erwan Rambourg, HSBC

‘This would encourage more Hong Kong people to decide to travel to the mainland during the Lunar New Year or other holidays due to the cheaper exchange rate for the yuan,” he said.

“Instead of having a lot of mainland tourists come to Hong Kong to shop and dine, the table has turned with the currency and now we would see more Hong Kong people buy goods and spend good holiday times in the mainland,” he said. “Again, this would boost the mainland hotel, tourist and private consumption sector.”

Goldman Sachs said in a report that it believes high-end hotels in Shanghai saw revenue per available room grow by 5.9 per cent year on year in the first 11 months of last year, with those in Beijing seeing growth of 1.7 per cent, while Hong Kong saw a decline of 11 per cent.

“While the soft macroeconomic environment continued to negatively impact the China lodging market in 2015, we are seeing some areas where RevPAR has already returned to positive growth territory, in particular Shanghai and Beijing,” the Goldman Sachs report said.

It said the good growth was due to a more diversified business and leisure demand mix and the 3.8 per cent year-on-year growth in international investment in mainland China in the first 11 months of last year.

An HSBC research note written by consumer analyst Lian Yan and global co-head of consumer and retail Erwan Rambourg put a buy rating for China International Travel, saying the stock would benefit from government policies.

“We believe China International Travel, as the largest domestic duty free operator in China, will benefit from the government’s continued relaxation of import duties designed to stimulate domestic consumption. Future state-owned enterprise reforms could improve overall efficiency,” the analysts said.

“The ramp-up in tourism to Haitang (on Hainan Island) and the new airport, scheduled to start in 2020, should help traffic growth over the long term.”

China International Travel’s management expects the government may announce more supportive policies this month including allowing goods to be ordered online and picked up at the airport as well as lifting the duty free quota.

The HSBC analysts said the current duty free policy in Sanya had a cap of 8,000 yuan, which made the pricing of products above 20,000 yuan less attractive.

“Lifting the cap could spur sales of luxury brands,” they said. “If shoppers can use the annual 16,000 yuan duty free quota in one go, this could help growth.”