CLSA, Asia’s leading equity broker and investment group released an investor report last week called “Chinese Tourists,” citing its bullish sentiments on China’s tourism industry. According to CLSA, despite a slowdown in the world’s second largest economy and a strong dollar, the Chinese tourism has grown more than 20% during the past five years.
As reported by CLSA, Chinese trips have increased to 125 million in 2015 from a 35 million figure reported back in 2005. Therefore, the leading investment bank is bullish on the tourism industry’s future growth prospective. By 2020, CLSA estimates Chinese tourists to increase to 200 million. According to the report, domestic travel is on the rise. In the next five years, domestic travel is expected to grow by 9% while the equity firm expects the Chinese outbound travel market to grow by 15%, mostly attributed to an increase in regional travel.
However, the broker remains negative on Hong Kong and Macau’s markets. It expects the relative markets to grow by only 3% in the next five years. Aaron Fischer, Regional Head of Consumer & Gaming at CLSA told Bloomberg that Hong Kong is in trouble. The markets face new challenges, which includes strong dollar, tensions with money lenders and capacity constraints on the hotel side. According to Mr. Fischer, Hong Kong needs new attractions and the government isn’t doing enough to attract new activities.
Mr. Fischer further highlighted that shopping isn’t the only activity and point of attraction. There is a significant change in consumers’ taste. Now, Chinese citizens are expanding their cultural horizons and are more into experiencing foreign cultures. For the next three years, the most attractive locations include Japan, Korea, and Thailand. Mr. Fischer indicated that income growth is a major concern in choosing outbound destinations. Most Chinese tourists tend to cut their outbound trips to countries like the US, Australia, and other European nations due to income constraints. In addition, Mr. Fischer also highlighted that travel momentum to outbound countries would slowdown if the dollar continues to grow stronger.
On the other hand, the increase in Chinese air travel will also boost businesses of major aircraft makers including the likes of Boeing and Airbus Group. Boeing expects to deliver more than 40% of its planes to China in the next five years, especially its low cost carriers commonly known as single-aisle planes. Boeing stock was up 1.90% at $128 during pre-market hours of trading at the New York Stock Exchange.
Similarly, Airbus Group will also benefit from the rise in Chinese tourist numbers. The European giant has already opened a completion facility in the world’s second largest economy and looks to strengthen its position in the country. Recently, it also signed a definite agreement with China Southern Airlines for the supply of 10 Airbus A300-330 series wide body jets to be delivered between 2017 and 2019. It is important to highlight that Boeing and Airbus compete toe to toe with each other in China.
CLSA also pointed out that the rise in Chinese tourism will also benefit leading travel providers like Qunar and Ctrip.com. Recently, Ctrip.com International Limited also declared that it is planning to acquire a “significant minority stake” in Qunar. Ctrip.com and Qunar is already operating as partners for the past three months and covers almost 80% of China’s online air-tickets and hotel markets.
Furthermore, CLSA has pointed out 16 stocks for 2016, which it expects to perform well in the current year. The stocks include several airports, cosmetics, and gaming stocks. The major stocks include Airport of Thailand PLC, Japan Airport Terminal Co, Ltd., and Wynn Macau Macau’s performance in 2015 was far below expectations. It revenues declined by more than 34% in 2015; however, Mr. Fischer believes that its revenues are expected to go up by 1% this year. Thus, Macau will be a good bet in 2016.
China is expected to become the world’s largest market for air travel in the next 20 years. Momentous growth in tourism despite a slowdown in the country’s economy shows the potential its tourism market holds. The number of Chinese tourists is increasing and according to a report, the country will create more than 1.4 billion tourist in the coming years. Furthermore, the tourists have the discretionary dollar to spend on tourism, says CLSA.