Speaker 1: Let's get to our guest. We're chatting with Parish Jay Next,
Speaker 1: Global equity sector heads Shipping in Ports, head of Transport
Speaker 1: Research at HSBC with a focus on the Age Pacific.
Speaker 1: So Parash, a lot of investors will be looking at
Speaker 1: these um these sounds of of reopening in China and
Speaker 1: trying to figure out ways to to play it. One
Speaker 1: way it might be the airlines. We can talk specifically
Speaker 1: about Hong Kong Airlines and and also the China airlines.
Speaker 1: I think let's start with the China airlines. There was
Speaker 1: still a lot of domestic activity that that the airlines
Speaker 1: could could look forward to, but with nobody traveling, international
Speaker 1: was was pretty much out and I'm curious about what
Speaker 1: it has to do with cargo. Uh. Now that there's
Speaker 1: a promise of reopening, does it make those equities China,
Speaker 1: Southern China, Eastern such look much better? As we have
Speaker 1: been saying when it comes to investing in airlines, is
Speaker 1: the news flow with drives the share price, and that
Speaker 1: has been the case for Kathy in the start of
Speaker 1: the year. That certainly is is the case for the
Speaker 1: big three Chinese airlines at the moment. I mean, we
Speaker 1: have been selectively buyers of these names all through with
Speaker 1: the simple premises that they are too big to fail
Speaker 1: and the China reopening was a matter of event rather
Speaker 1: than if, And now with perhaps one inch closer to
Speaker 1: the reopening than we have been in the last three years,
Speaker 1: I think they become one of the leeward play to
Speaker 1: to to play this theme for many of those investors.
Speaker 1: In terms of Kathay, how do you view its space
Speaker 1: of recovery into three We've seen some pretty decent rise
Speaker 1: for the share price as well in the past year,
Speaker 1: but we're still some way off the peak. When when
Speaker 1: do you see them getting back to potential profit and
Speaker 1: the share price climbing back to where it was pre COVID. Yeah,
Speaker 1: so two past to your question, So when will Cathy
Speaker 1: return into anvil profit? Which is next year, But on
Speaker 1: our numbers, Kathy is already making money even in this
Speaker 1: quarter or the second half of twenty two. Of course,
Speaker 1: it was pretty much cargo lead, whereas the focus will
Speaker 1: shift to the passenger's side of the things in twenty
Speaker 1: three when Kathy has. Katay Has in their recent briefing
Speaker 1: said that they intend to achieve up to of their
Speaker 1: pre COVID capacity by the end of three and that
Speaker 1: that means that we probably will see a tight yield environment,
Speaker 1: given given the pent up demand that we have witnessed
Speaker 1: across the market, particularly in Hong Kong. But what separates
Speaker 1: perhaps Kathy is a story from the Big three is
Speaker 1: that one of the biggest drivers for Kathy during COVID
Speaker 1: was a super strong cargo market, and as the cargo
Speaker 1: market rolls over it Brittin will take some of the
Speaker 1: shin away from the pace of recovery, which is no
Speaker 1: longer the case for the big three airlines. So, yeah,
Speaker 1: Kathy making money next year. With respected the share price,
Speaker 1: we have a nine dollar fifty target. The stock has
Speaker 1: done well, we still see it's somewhat somewhat upside onto
Speaker 1: this name. But on an absolute level, I think now
Speaker 1: the big three airlines offer you a better return than Cathy. Yeah.
Speaker 1: I was just having to look at China Southern and
Speaker 1: it's actually pretty close to the highs of two. It's
Speaker 1: had a very strong rally here in the past two weeks,
Speaker 1: but it's of course far far away from the highs
Speaker 1: we saw back in two thousand and eighteen when the
Speaker 1: trade war happened. Um So I want. I want to
Speaker 1: get your overall outlook for global trade next year and
Speaker 1: whether or not you know recession in the West, particularly
Speaker 1: in the United States, the biggest economy in the world,
Speaker 1: whether that means um you know, further trouble ahead, even
Speaker 1: though China's reopening perfect though when you look at the airlines,
Speaker 1: I mean, what we have been telling investors in the
Speaker 1: last few few months is that China's airline recovery is
Speaker 1: in a cycle of its own. Given that given the
Speaker 1: pent up demand that you would see as soon as
Speaker 1: China reopens, and perhaps they they would not be impacted
Speaker 1: as much by the recession. Fear that you would see
Speaker 1: some of the some of the airlines in the U
Speaker 1: s or Europe will have to go through. So with
Speaker 1: respect to the potential recession, it will be perhaps the
Speaker 1: global trade which will take a more front because for them,
Speaker 1: the Western the Europe or the US is far more
Speaker 1: important than China. But so far as airlines is concerned,
Speaker 1: I think they will be able to navigate navigate next
Speaker 1: year pretty smoothly given the pent of demand. And but
Speaker 1: how about the consumer though, how is their strength likely
Speaker 1: to remain robust as inflation and pressures rise? And I've
Speaker 1: got to point out air tickets cheap at the moment
Speaker 1: as well, particularly in my part of the world. So
Speaker 1: how's the recovery going to go if we have high
Speaker 1: airfares and nervous consumers now? Absolutely, and that that's the
Speaker 1: message that we are trying to get across. So in
Speaker 1: many of the markets where you have already seen the
Speaker 1: unlist of pent up demand, all of these things will
Speaker 1: come into play. I mean, if you look at some
Speaker 1: of the different markets where your airline capacity is approaching
Speaker 1: pretty much close to back to two nineteen level, all
Speaker 1: of these these things will come into play. But when
Speaker 1: we look at the recovery out of China, the fact
Speaker 1: that in the month of October they are only handling
Speaker 1: about five percent equivalent of international capacity, I mean, if
Speaker 1: the interest of capacity goes to going into the next year,
Speaker 1: there will be a sufficient amount of pent up demand.
Speaker 1: And to your point, probably what we would see what
Speaker 1: we have already seen the last twelve months in the
Speaker 1: in the markets which has reopened the post COVID is
Speaker 1: a shifting perhaps a consumption spending. So your overall wallet
Speaker 1: maybe getting the pinch, but probably you will still try
Speaker 1: to take your next trip perhaps will be will be
Speaker 1: adjusting some other part of your wallet. Let's broaden the
Speaker 1: conversationation a little bit away from air transport and air
Speaker 1: freight to maybe looking at shipping overall shipping. Is it
Speaker 1: going to stay tough for dry bulk at least for
Speaker 1: the next half year in general? I mean when we
Speaker 1: talk about dry ball, China is is very very critical
Speaker 1: and with that regard a lot depend upon what what
Speaker 1: would be the key driver for China's recovery going into
Speaker 1: next year, because what we have seen this year, particularly
Speaker 1: with this with the slowdown in the property sector, the
Speaker 1: still demand has weakened, which is pretty much the single
Speaker 1: largest driver for iron't ore. So our our views that
Speaker 1: going into the next year, perhaps some of the larger
Speaker 1: size of vessels, which Escape size and Panamaics vessels might
Speaker 1: outperform the smaller size of vessels which is Handy Mix
Speaker 1: and Panamax, which are largely depending on the rest of
Speaker 1: the world recovery, which is where we are facing the headwind.
Speaker 1: Um is there a potential risk as well around disruption
Speaker 1: at ports as people go off sick with COVID and
Speaker 1: so I would say that we have seen a series
Speaker 1: of disruptions over the last two two and a half year,
Speaker 1: and when it occurred for the first time, whether it's
Speaker 1: since Shanghai or in Nengbo, it was disrupting. But I
Speaker 1: think with time the industry started to appreciate that cargo
Speaker 1: must move on, and we have seen a lesser and
Speaker 1: lesser impact with every every wave of COVID disrupting the
Speaker 1: supply chain. Going into next year, probably where we see
Speaker 1: the impact will be much milder because their demand is
Speaker 1: unlikely to be as strong as it was in one
Speaker 1: where basically the tight supply and higher than average demand
Speaker 1: created that spike in the freight rate. I give you
Speaker 1: twenty seconds per USh um. Does reshoring and French shoring
Speaker 1: mean a lot less global trade going forward? And short
Speaker 1: answer is no. I mean we have been hearing about
Speaker 1: about restoring near shoring pretty much since global financial crisis,
Speaker 1: and if you see the export China's export share in
Speaker 1: twenty one, it has been the highest ever. So yes,
Speaker 1: we will see extension of supply chain, and which would
Speaker 1: mean that more and more low and manufacturing will move
Speaker 1: to perhaps via Thaighland or perhaps Global Equity Secretar ahead