China’s Travel Headwind for investors

For those who follow the asian sports world, they might know that the Asian Games are currently underway in GuangZhou, China. This event marks the 2nd epic international event in China this year, right after the World Expo, which began on May 1st, and ended on October 31st.

Like the Olympics in 2008, China planned for a long time for these two events and spent lavishly as well. For the Asian Games, GuangDong province spent USD $18 billion, while Shanghai spent USD $58 billion, with a lot of the spending went into infrastructure.

Unlike the Olympics, a lot of people outside China never knew above these two events, and a large percentage of those who knew would never think of traveling afar to attend. Nonetheless, the attendance of the World Expo broke record this year, with over 73 million visitors for the event. Of all the visitors, less than 6% are foreigners, with most attendees coming from all over China. Statistics on the Asian games are not known at this point, but it’s safe to assume that foreign attendees will be greatly outnumbered by China’s attendees.

For the World Expo, there are rumors that many State governments were giving employees holidays and subsidizing them to attend the world expo, so that China can be sure that the international event would be a success. While they were just rumors, we learned that rumors are not to be dismissed lightly when it comes to China’s national pride.

In any case, the World Expo in China, and the Asian Games thereafter, have greatly benefited the travel industry in China. The World Expo, particularly, had used up a lot of the traveling/vacation budget for ordinary Chinese. With these 2 events going away, we think there are a lot of headwind for the revenue and earnings growth for China’s airline stocks such as China Southern Airlines (NYSE: ZNH) and China Eastern Airlines (NYSE: CEA), and China’s travel industry stocks such as Ctrip.com International (NASDAQ: CTRP) and eLong, Inc. (NASDAQ: LONG).

With China trying to rein in its red-hot economy, leading a global marketing correction right now, investors are becoming cautious. They should particularly be careful in China’s travel related stocks, especially if they care about the short term performance of them.

This article originally appeared in Benzinga.com

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