The upcoming surge in Chinese outbound travel demand The upcoming surge in Chinese outbound travel demand The upcoming surge in Chinese outbound travel demand

The upcoming surge in Chinese outbound travel demand

Charu Chanana

Head of FX Strategy

Summary:  Outbound tourism from China has been the biggest contributor to global tourism pre-pandemic. With border measures being eased after three years, pent-up demand and accumulated savings of Chinese consumers will likely mean a surge in outbound travel demand over the next few years. The big and early winners of that will potentially be in Asia as the number of flights to the West destinations still remain limited. We have identified a list of stocks that provide exposure to the Asian hospitality sectors that mostly serve Chinese tourists.


Chinese travelers dominate global tourism

China’s outbound travelers have been the biggest contributor to global tourism before the pandemic. Before the pandemic, Chinese travelers made 155 million trips abroad in 2019 and spent almost $255 billion, amounting to 14% of global tourism revenue. After three years of pandemic restrictions, China has relaxed its Covid contained measures in a quicker-than-expected manner since November. We have been of the view that the biggest pivot for 2023 has been the faster-than-expected China reopening, and that will continue to be the key theme for traders and investors this and next year as the Chinese demand comes back online to drive local, regional and global markets. China Outbound Tourism Research Institute (Cotri) expects Chinese travelers to take 110 million international trips this year, which is about two-thirds of the 2019 level. This could mean an estimated spend of about $180 billion globally, which could be a source of revival for the hospitality industry that has seen a big void from the absence of Chinese tourists in the last three years.

Since the reopening of China and easing of border restrictions in January, travel pickup has been restrained with concerns around spread of the virus and risks of new variants. However, there has been no sharp rise in cases reported even after the Lunar New Year celebration at the end of January, and China saw an average of 410,000 exits and entries per day, up 120% over the Lunar New Year holiday last year, as per the National Immigration Administration. Further recovery should start to pick up now into the second quarter as the May 1 Labor Day holiday approaches and gather further pace in the second half of the year and into the national holidays in September and October. China has a five-day holiday for Labor Day and a week off in early October for National Day, and both these are considered to be the golden periods for travel.

Asia tourism growth to lead the global recovery

While it is prudent to expect that full Chinese travel demand recovery will take a few years, there is no doubt that the floodgates are about to be open. The big and early winners of that will likely be some of the Asian travel operators as regional destinations remain the top choice for most Chinese travellers. These will include Hong Kong, Macau and Thailand, followed by Japan, South Korea, Australia and other Southeast Asian countries. Hong Kong received only 370,000 visitors from the mainland in 2022, down from around 50 million pre-pandemic. Expectations are for this to be revived to 60-70% this year, suggesting about 30-35 million tourists from China. Thailand expects to host 7-8 million Chinese tourists in 2023, also a 60-70% recovery from 2019 levels.

Travel to further destinations in Europe and North America could take about an year or more to recover as the limited number of commercial flights and visa backlogs restrain a pickup. A lack of flights keeps the prices higher, although that may be offset slightly by higher budgets driven by accumulated savings over the pandemic years. Chinese travellers are also likely to chose safer destinations as travel resumes, given the surge in anti-Asian sentiment globally since the emergence of the pandemic.

Asia Pacific Tourism equity theme basket

We have launched a new Asia Pacific Tourism equity theme basket to capture the expectations of an improvement in China’s outbound tourism. The list contains predominantly Asian stocks across booking platforms, airlines, airport services, hotels, casinos and restaurants in countries that will likely see the biggest inflow of tourists from China over the course of the year. We have also included the key Thailand index given its heavy dependence on Chinese tourism.

The basket represents a total market value of $476.6 billion with Booking Holdings leading the pack. Sales growth has returned to a positive territory over the last year after the Covid shock but earnings have remained under pressure. Analyst generally expect earnings rebound for these companies as Chinese travel rebounds, and this is reflected in median price targets being 12% above the current price currently.

Source: Bloomberg, Saxo

Risks to the view

A lack of international flights, as well as the shortages of pilots and crew, is keeping travel prices higher and remains the biggest risk for the Chinese outbound travel recovery. In January, the capacity of global carriers' flights traveling to and from China was only 11% of the level compared with 2019. In April, the number is expected to rise to 25%, according to travel data provider Cirium. Higher prices could force Chinese consumer to push their international holiday plans to late 2023 or 2024.

Other risks are seen from new Covid variants or mass spread of infections prompting another round of travel curbs around the region. Meanwhile, if economic growth across the region slows down enough to erode the purchasing power of consumers, that could mean a setback on demand for travel.

Disclaimer

The Saxo Bank Group entities each provide execution-only service and access to Analysis permitting a person to view and/or use content available on or via the website. This content is not intended to and does not change or expand on the execution-only service. Such access and use are at all times subject to (i) The Terms of Use; (ii) Full Disclaimer; (iii) The Risk Warning; (iv) the Rules of Engagement and (v) Notices applying to Saxo News & Research and/or its content in addition (where relevant) to the terms governing the use of hyperlinks on the website of a member of the Saxo Bank Group by which access to Saxo News & Research is gained. Such content is therefore provided as no more than information. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. All trading or investments you make must be pursuant to your own unprompted and informed self-directed decision. As such no Saxo Bank Group entity will have or be liable for any losses that you may sustain as a result of any investment decision made in reliance on information which is available on Saxo News & Research or as a result of the use of the Saxo News & Research. Orders given and trades effected are deemed intended to be given or effected for the account of the customer with the Saxo Bank Group entity operating in the jurisdiction in which the customer resides and/or with whom the customer opened and maintains his/her trading account. Saxo News & Research does not contain (and should not be construed as containing) financial, investment, tax or trading advice or advice of any sort offered, recommended or endorsed by Saxo Bank Group and should not be construed as a record of our trading prices, or as an offer, incentive or solicitation for the subscription, sale or purchase in any financial instrument. To the extent that any content is construed as investment research, you must note and accept that the content was not intended to and has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such, would be considered as a marketing communication under relevant laws.

Please read our disclaimers:
- Notification on Non-Independent Investment Research (https://www.home.saxo/legal/niird/notification)
- Full disclaimer (https://www.home.saxo/en-gb/legal/disclaimer/saxo-disclaimer)

Saxo Markets
40 Bank Street, 26th floor
E14 5DA
London
United Kingdom

Contact Saxo

Select region

United Kingdom
United Kingdom

Trade Responsibly
All trading carries risk. To help you understand the risks involved we have put together a series of Key Information Documents (KIDs) highlighting the risks and rewards related to each product. Read more
Additional Key Information Documents are available in our trading platform.

Saxo Markets is a registered Trading Name of Saxo Capital Markets UK Ltd (‘SCML’). SCML is authorised and regulated by the Financial Conduct Authority, Firm Reference Number 551422. Registered address: 26th Floor, 40 Bank Street, Canary Wharf, London E14 5DA. Company number 7413871. Registered in England & Wales.

This website, including the information and materials contained in it, are not directed at, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in the United States, Belgium or any other jurisdiction where such distribution, publication, availability or use would be contrary to applicable law or regulation.

It is important that you understand that with investments, your capital is at risk. Past performance is not a guide to future performance. It is your responsibility to ensure that you make an informed decision about whether or not to invest with us. If you are still unsure if investing is right for you, please seek independent advice. Saxo Markets assumes no liability for any loss sustained from trading in accordance with a recommendation.

Apple, iPad and iPhone are trademarks of Apple Inc., registered in the U.S. and other countries. App Store is a service mark of Apple Inc. Android is a trademark of Google Inc.

©   since 1992