China stock market

Chinese airlines climb as central bank steps in to stabilise weakening yuan

PUBLISHED : Monday, 27 August, 2018, 11:45am
UPDATED : Monday, 27 August, 2018, 3:19pm

Chinese carriers, led by Juneyao Airlines and China Southern Airlines, jumped on Monday after the central bank said it is taking measures to stem a loss in the yuan, spurring optimism that a stronger local currency will reduce their foreign debt burden.

In Shanghai, Juneyao Airlines rose 3.1 per cent to 13.25 yuan, China Southern Airlines added 4.5 per cent to 6.97 yuan and Air China gained 3.3 per cent to 7.62 yuan.

The benchmark Shanghai Composite Index rose 1.9 per cent as the strengthening yuan also bolster confidence among investors.

China’s offshore yuan rose as much 0.4 per cent in Hong Kong, extending a 1.3 per cent advance from the previous trading day, after the People’s Bank of China said on Friday after the market close that an adjustment, known as the counter-cyclical factor, has been resumed in setting yuan’s daily reference rate to offset the depreciation.

The central bank also said the adjustment is expected to play an active role in keeping the yuan at a reasonable and stable level in the future.

Chinese airlines are among the sectors that are most exposed to foreign-currency borrowings.

Juneyao Airlines had 11 per cent of long-term debts denominated in US dollars at the end of June, according to its interim results. A 1 per cent gain in the yuan will boost the carrier’s profit by about 1.3 million yuan (US$190,691), according to Citic Securities.

A 1 per cent appreciation in the yuan usually raises the gross profit margin of Chinese airlines by 0.5 per cent.

The yuan’s gain has provided some relief to Chinese carriers whose earnings have been hurt by a weaker local currency and rising costs of crude oil.

Juneyao Airlines is down 13 per cent this year. State-owned rivals have fared worse, with shares of Air China, China Southern and China Eastern Airlines falling at least 32 per cent.

First-half profit for Juneyao Airlines, a budget carrier, dropped 1.1 per cent from a year earlier. Net income for Air China, which owns the nation’s largest international fleet, probably dropped 20 per cent from a year ago, while that for China Southern may have fallen 11 per cent, according to Bloomberg data.

Air China and China Southern are expected to release results this week.