Chinese New Year occurs this weekend, setting in motion the largest migration of people on the planet. China's Transportation Ministry estimates that there will be close to 3.0 billion domestic trips over the holiday period, up 2.2% from last year.
Traditionally, people head back to their ancestral home towns to celebrate with immediate and extended family. New Year's Day is on Saturday, Jan. 28. The Year of the Monkey transitions into the Year of the Rooster.
But increasingly, as incomes rise Chinese travelers are setting their sights overseas. Last year's holiday saw a record 5.7 million international travelers head abroad, a tally sure to be outdone this time around. Thailand, South Korea and Japan, in order, are the top destinations. Journeys to Japan are rising the fastest, thanks in part to the weak yen.
A total of 50 million people are likely to fly within China over Lunar New Year, up 10% from last year. Transportation stocks such as Hainan Airlines SH:600221 are therefore interesting plays.
Air China (AIRYY) is the country's flagship carrier. But China Southern Airlines (ZNH) , with 115 million passengers in 2016, and China Eastern Airlines (CEA) , with 102 million, outstrip Air China's 97 million tally thanks to heavy traffic on domestic routes.
Hainan Airlines' parent, the HNA Group, has a bewildering lineup of subsidiaries and interests. HNA just outbid 17 rivals to buy a residential site at Hong Kong's old airport, Kai Tak, famed for its hair-raising landing until it closed in 1998. That is the company's third such purchase on that site in three months, with the company managing its property interests via HNA Holding HK:0521.
The 15 days of the Chinese New Year holiday each have a different purpose, with a dinner with your nuclear family on New Year's Eve. New Year's Day is the time to visit immediate family, particularly your elders, the second is the day that married women visit their birth parents, and the sixth is the day for visiting friends. Much of China shuts down for two weeks over the holidays.
Even in Hong Kong, you can barely get anything done for the three days around the New Year. Personally, my family always enjoys staying in town for what inevitably ends up being the coldest time of the year. I love the fact that Hong Kong is finally quiet, and you can virtually walk the streets in Central. Chek Lap Kok airport, as you can imagine, is mayhem.
The date is set by the lunar cycle, and the holiday is also known as the Lunar New Year, celebrated in Korea, Mongolia and Vietnam, and the "Spring Festival" since it heralds the end of winter.
In its popular Chinese New Year forecast, the Asia-focused brokerage CLSA highlighted transportation and gambling stocks as the sectors that would fare best in the first quarter. But the broader Hong Kong and China market will be flat, the brokerage predicts, with the element of water abundant, putting out the flames in this Fire Rooster year.
CLSA equity analyst Chris Wood includes China Communications Construction (CCCGY) , China's largest port-construction company, in his model Asia ex-Japan portfolio, with a 4% weighting, as a play on the Chinese infrastructure industry. He also has a 3% weighting to Maanshan Iron & Steel SH:600808 as an investment in the raw production of the metals used in construction.
As a transportation stock, Nomura includes Shenzhen International HK:0152 in its model China portfolio. The company operates warehouse parks and toll roads. Most notably at this time of year, though, it also lists Shenzhen Airlines, China's fifth-largest carrier, among its subsidiaries.
Another transport-related stock in the Nomura portfolio is Fuyao Glass HK:3606, which makes the safety glass you find in automobile windshields. Thanks in part to a preferential tax rate on low-emission cars, Chinese auto sales rose 14% in 2016.
Fuyao has cornered two-thirds of its market in China, and is therefore expanding overseas. Its U.S. subsidiary, with the world's largest car-glass factory, supplies General Motors, Chrysler, Hyundai and Kia, to name a few.
Chinese New Year has not been good for precious metals. Gold prices have fallen from two-month highs, partly because demand for physical gold is on the wane as China hunkers down for the holiday. That effect was strong enough to reverse the flight to safety that had driven the metal up 8% in the month since December 22, to $1,217 per ounce, as investors sought refuge from the winds buffeting markets as Donald Trump took office.
China's economy grew at 6.7% for 2016, the National Bureau of Statistics "revealed" to no one's surprise on Monday; Beijing basically mandated that rate at its agenda-setting meeting in March. The pace would be the envy of most of the rest of the world. But it was still the lowest rate of growth since 1990, with double-digit economic expansion for most of the years in between. Growth is likely to slide to around 6.5% this year.
Société Générale says even that will be hard to achieve, with cooling measures sure to restrain the housing market. The auto sector will also struggle to sustain last year's heady rate of growth, the French bank believes, even though the tax perk has been extended at a lower rate. The two sectors together make up almost 15% of China's economy.