Much has been made about the slowdown in the Chinese economy but, despite the headlines, the fact remains that on a per-capita basis Chinese GDP is on an upward trajectory. Indeed, the average per-capita figure, which is currently in the $7,000-$8,000 range, is expected to rise to between $11,000 and $12,000 by 2020, with that number already being achieved in some metropolitan areas.
For the average man and woman on the street that means one thing – more money to spend on luxuries. And among the luxuries being favoured by the Chinese population is travel and tourism.
In 2015 alone, spending on tourism reached $150bn, with that sum expected to grow by 7-11% over the next decade. In May, Chinese Premier Li Keqiang stressed at the opening ceremony of the First World Conference on Tourism for Development in Beijing that China’s tourism revenue and trips per capita are expected to double by 2020 when compared with 2015.
On the up
From an investment point of view this creates huge opportunities. Although tourism is growing at a rapid rate, the sector remains largely underpenetrated, meaning many of its stocks are undervalued growth plays. Airlines in particular are proving attractive, with favourable government policy and persistently low oil prices as well as improving lifestyles all helping to drive profitability.
Indeed, plummeting oil prices have made the airlines’ operating costs – hence the cost of air fares – lower at the same time the government has introduced policies designed to bolster the tourism sector. In addition to unveiling plans to increase the number of holidays available to the population and introducing more flexible-working arrangements, the government is also putting resources into developing rural tourism.
Plane sailing
With airlines introducing new routes, both domestic and international, a number of Chinese airports are benefiting. Shenzhen Airport is a case in point. We like Shenzhen Airport Company (SZAC) not only because it has sufficient capacity to support further growth, but because it is repositioning itself as an international hub, too.
While regional peers Guangzhou Baiyun International Airport and Hong Kong International Airport will suffer from capacity bottlenecks until their expansion works complete in 2018 and 2023 respectively, SZAC’s 2015 utilisation rate of 82% shows it is in a strong position to gain market share.
The airport has added routes to link the South China region to Southeast Asia and Australia, with Civil Aviation Administration of China flight plans showing that SZAC will offer 25% more international flights this year than it did last year.
High growth area
Aircraft leasing and duty free also fit with this trend, given the expansion of both airline operators and airports. China Aircraft Leasing Group (CALC) is currently on track to become one of the leading aircraft leasing companies in China. Thanks to its relationship with aircraft manufacturer Airbus, CALC can take delivery of new planes more rapidly than airlines can, benefiting from a bulk purchase discount in the process.
|
Just as the tourism sector more generally stands to benefit from under-penetration, so too does CALC, with China’s domestic airline industry leasing ratio of 40% comparing with a ratio of around 60% in developed markets.
As Chinese airline companies turn to leasing to support the expansion of their fleets, this looks set to be another high-growth area.
Duty-free operators stand to benefit from increased footfall in airports as well as a relaxation in the quotas applied to this type of consumption. In the island province of
Hainan, for example, domestic tourists from outside the province can now buy duty-free products with an annual purchase price of RMB16,000 with no restrictions on frequency, while previously they were limited to RMB5,000 across a maximum of two trips per year. As the State Council plans to launch 19 extra duty-free stores in various airports across the country, this consumption spree looks set to continue.
Although there are some headwinds affecting the China tourism sector, most notably the impact of capacity constraints, the appetite for travel among the Chinese population means that growth in the sector is all but unstoppable. From an investment perspective that is compelling.
Disclaimer
This document does not constitute and shall not be construed as a prospectus, public offering or placement of, nor a recommendation to buy, sell, hold or solicit, any investment, security, other financial instrument or other product or service. It is not intended to be a final representation of the terms and conditions of any investment, security, other financial instrument or other product or service. This document is for general information only and is not intended as investment advice or any other specific recommendation as to any particular course of action or inaction. The information in this document does not take into account the specific investment objectives, financial situation, tax situation or particular needs of the recipient. You should seek your own professional advice (including tax advice) suitable to your particular circumstances prior to making any investment or if you are in doubt as to the information in this document.
This document contains material that may be interpreted in the country in which this document has been communicated as a financial promotion and/or advertisement in relation to investment services, securities or other investments. Accordingly, the information in this document is only intended to be viewed by persons who fall outside the scope of any law that seeks to regulate financial promotions and/or advertisements in the country of your residence or in the country in which this document has been communicated. If you are uncertain about your position under the laws of the country in which this document has been communicated, then you should seek clarification by obtaining legal advice.
Although information in this document has been obtained from sources believed to be reliable, no member of the EFG group represents or warrants its accuracy, and such information and/or investment research may be inaccurate, incomplete or condensed.
Any opinions in this document are subject to change without notice. This document may contain personal opinions which do not necessarily reflect the position of any member of the EFG group. To the fullest extent permissible by law, no member of the EFG group shall be responsible for the consequences of any errors or omissions herein, or reliance upon any opinion or statement contained herein, and each member of the
EFG group expressly disclaims any liability, including (without limitation) liability for incidental or consequential damages, arising from the same or resulting from any action or inaction on the part of the recipient in reliance on this document.
The value of investments and the income derived from them can fall as well as rise, and any reference to past performance is no indicator of current or future performance. Any past performance data for collective investment schemes may not take account of the commissions and costs incurred on the issue and redemption of shares. Income from an investment may fluctuate. Investment products may be subject to investment risks involving, but not limited to, possible loss of all or part of the principal invested. The risk of loss from investing in commodity and financial futures, foreign exchange contract securities, warrants and index contracts and options can be substantial.
The publication or availability of this document in any jurisdiction or country may be contrary to local law or regulation and persons who come into possession of this document should inform themselves of and observe any restrictions. No distribution of this information to anyone other than the designated recipient is intended or authorized. This document may not be reproduced, disclosed or distributed (in whole or in part) to any other person without prior written permission from an authorised member of the EFG group.
The information contained in this document is merely a brief summary of key aspects of the New Capital UCITS Fund plc (the “Fund”). More complete information on the Fund can be found in the prospectus or key investor information document, and the most recent audited annual report and the most recent semi-annual report. These documents constitute the sole binding basis for the purchase of Fund units. Copies of these documents are available free of charge and may be obtained at the registered office of the Fund at 5 George’s Dock, IFSC, Dublin 1, Ireland; in the United Kingdom from the facilities agent EFG Asset Management (UK) Limited (“EFGAM”), Leconfield House, Curzon Street, London W1J 5JB, United Kingdom; in Germany from the German information agent, HSBC Trinkaus & Burkhardt AG, Königsallee 21/23, 40212 Düsseldorf, Germany; in France from the French centralizing agent, Societe Generale, 29, boulevard Haussmann – 75009 Paris, France; in Luxembourg
from the Luxembourg paying agent, HSBC Securities Services (Luxembourg) S.A., 16 boulevard d’Avranches, L-1160 Luxembourg, R.C.S. Luxembourg, B28531; in Austria from the Austrian paying and information agent, Erste Bank der oesterreichischen Sparkasse AG Graben 21, 1010 Vienna, Austria; in Sweden from the Swedish paying agent, MFEX Mutual Funds Exchange AB, Linnégatan 9-11, 11 447 Stockholm, Sweden; and in Switzerland from the Swiss representative, CACEIS (Switzerland) SA, Route de Signy 35, CH-1260 Nyon and the paying agent, EFG Bank AG, Bleicherweg 8, 8022 Zurich.
Hong Kong: This document does not constitute an offer, solicitation or invitation, publicity or any other advice or recommendation. The information contained within this document has been obtained from sources believed to be reliable and accurate at the time of issue but no representation or warranty, expressed or implied, is made as to the fairness, accuracy or completeness of the information. Investment involves risk. Past performance is not indicative of future results. Before making any investment decision to invest in the Fund, you should read the Hong Kong offering documents and especially the risk factors therein. An investment in the Fund may not be suitable for everyone. If you are in any doubt about the contents of this document, you should consult your stockbroker, bank manager, solicitor, accountant or other financial adviser for independent professional advice. This document is issued by EFG Asset Management (Hong Kong) Limited and has not been reviewed by the
Securities and Futures Commission (“SFC”) in Hong Kong. The SFC takes no responsibility for the contents of this statement and makes no representation as to its accuracy or completeness.
Singapore: The Fund is not authorised or recognized by the Monetary Authority of Singapore (the “MAS”) and the shares in the Fund (the “Shares”) are not allowed to be offered to the Singapore retail public. Moreover, this presentation, and any other document or material issued in connection with the offer or sale is not a prospectus as defined in the Securities and Futures Act, Chapter 289 of Singapore (“SFA”).
Accordingly, statutory liability under the SFA in relation to the content of prospectuses would not apply. You should consider carefully whether the investment is suitable for you.
This presentation has not been registered as a prospectus by the MAS, and the offer of the Shares is made pursuant to the exemptions under Sections 304 and 305 of the SFA. Accordingly, the Shares may not be offered or sold, nor may the Shares be the subject of an invitation for subscription or purchase, nor may this presentation or any other document or material in connection with the offer or sale, or invitation for subscription or purchase of the Shares be circulated or distributed, whether directly or indirectly, to any person in Singapore other than under exemptions provided in the SFA for offers made (a) to an institutional investor (as defined in Section 4A of the SFA) pursuant to Section 304 of the SFA, (b) to a relevant person (as defined in Section 305(5) of the SFA), or any person pursuant to an offer referred to in Section 305(2) of the SFA, and in accordance with the conditions specified in Section 305 of the SFA or (c) otherwise pursuant to, and in accordance with, the conditions of any other applicable provision of the SFA.
Where the Shares are acquired by persons who are relevant persons specified in Section 305A of the SFA, namely:
a) a corporation (which is not an accredited investor (as defined in Section 4A of the SFA)) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, the shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within six months after that corporation or that trust has acquired the Shares pursuant to an offer made under Section 305 of the SFA except:
1. to an institutional investor or to a relevant person as defined in Section 305(5) of the SFA, or which arises from an offer referred to in Section 275(1A) of the SFA (in the case of that corporation) or Section 305A(3)(i)(B) of the SFA (in the case of that trust);
2. where no consideration is or will be given for the transfer;
3. where the transfer is by operation of law;
4. as specified in Section 305A(5) of the SFA; or
5. as specified in Regulation 36 of the Securities and Futures (Offers of Investments) (Collective Investment Schemes) Regulations 2005 of Singapore.
The offer, holding and subsequent transfer of Shares are subject to restrictions and conditions under the SFA. You should consider carefully whether you are permitted (under the SFA and any laws or regulations applicable to you) to make an investment in the Shares and whether any such investment is suitable for you and you should consult your legal or professional advisor if in doubt.
This document has been produced by EFG Asset Management (UK) Limited for use by the EFG group and the worldwide subsidiaries and affiliates within the EFG group. EFG Asset Management (UK) Limited is authorised and regulated by the UK Financial Conduct Authority, registered no. 7389746. Registered address: EFG Asset Management (UK) Limited, Leconfield House, Curzon Street, London W1J 5JB, United Kingdom, telephone +44 (0)20 7491 9111.
