WEBVTT - Parash Jain on Aviation (Radio)

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<v Speaker 1>Let's get to our guest. We're chatting with Parish Jay Next,

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<v Speaker 1>Global equity sector heads Shipping in Ports, head of Transport

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<v Speaker 1>Research at HSBC with a focus on the Age Pacific.

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<v Speaker 1>So Parash, a lot of investors will be looking at

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<v Speaker 1>these um these sounds of of reopening in China and

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<v Speaker 1>trying to figure out ways to to play it. One

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<v Speaker 1>way it might be the airlines. We can talk specifically

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<v Speaker 1>about Hong Kong Airlines and and also the China airlines.

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<v Speaker 1>I think let's start with the China airlines. There was

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<v Speaker 1>still a lot of domestic activity that that the airlines

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<v Speaker 1>could could look forward to, but with nobody traveling, international

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<v Speaker 1>was was pretty much out and I'm curious about what

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<v Speaker 1>it has to do with cargo. Uh. Now that there's

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<v Speaker 1>a promise of reopening, does it make those equities China,

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<v Speaker 1>Southern China, Eastern such look much better? As we have

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<v Speaker 1>been saying when it comes to investing in airlines, is

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<v Speaker 1>the news flow with drives the share price, and that

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<v Speaker 1>has been the case for Kathy in the start of

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<v Speaker 1>the year. That certainly is is the case for the

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<v Speaker 1>big three Chinese airlines at the moment. I mean, we

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<v Speaker 1>have been selectively buyers of these names all through with

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<v Speaker 1>the simple premises that they are too big to fail

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<v Speaker 1>and the China reopening was a matter of event rather

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<v Speaker 1>than if, And now with perhaps one inch closer to

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<v Speaker 1>the reopening than we have been in the last three years,

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<v Speaker 1>I think they become one of the leeward play to

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<v Speaker 1>to to play this theme for many of those investors.

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<v Speaker 1>In terms of Kathay, how do you view its space

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<v Speaker 1>of recovery into three We've seen some pretty decent rise

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<v Speaker 1>for the share price as well in the past year,

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<v Speaker 1>but we're still some way off the peak. When when

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<v Speaker 1>do you see them getting back to potential profit and

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<v Speaker 1>the share price climbing back to where it was pre COVID. Yeah,

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<v Speaker 1>so two past to your question, So when will Cathy

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<v Speaker 1>return into anvil profit? Which is next year, But on

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<v Speaker 1>our numbers, Kathy is already making money even in this

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<v Speaker 1>quarter or the second half of twenty two. Of course,

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<v Speaker 1>it was pretty much cargo lead, whereas the focus will

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<v Speaker 1>shift to the passenger's side of the things in twenty

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<v Speaker 1>three when Kathy has. Katay Has in their recent briefing

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<v Speaker 1>said that they intend to achieve up to of their

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<v Speaker 1>pre COVID capacity by the end of three and that

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<v Speaker 1>that means that we probably will see a tight yield environment,

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<v Speaker 1>given given the pent up demand that we have witnessed

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<v Speaker 1>across the market, particularly in Hong Kong. But what separates

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<v Speaker 1>perhaps Kathy is a story from the Big three is

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<v Speaker 1>that one of the biggest drivers for Kathy during COVID

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<v Speaker 1>was a super strong cargo market, and as the cargo

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<v Speaker 1>market rolls over it Brittin will take some of the

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<v Speaker 1>shin away from the pace of recovery, which is no

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<v Speaker 1>longer the case for the big three airlines. So, yeah,

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<v Speaker 1>Kathy making money next year. With respected the share price,

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<v Speaker 1>we have a nine dollar fifty target. The stock has

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<v Speaker 1>done well, we still see it's somewhat somewhat upside onto

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<v Speaker 1>this name. But on an absolute level, I think now

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<v Speaker 1>the big three airlines offer you a better return than Cathy. Yeah.

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<v Speaker 1>I was just having to look at China Southern and

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<v Speaker 1>it's actually pretty close to the highs of two. It's

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<v Speaker 1>had a very strong rally here in the past two weeks,

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<v Speaker 1>but it's of course far far away from the highs

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<v Speaker 1>we saw back in two thousand and eighteen when the

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<v Speaker 1>trade war happened. Um So I want. I want to

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<v Speaker 1>get your overall outlook for global trade next year and

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<v Speaker 1>whether or not you know recession in the West, particularly

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<v Speaker 1>in the United States, the biggest economy in the world,

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<v Speaker 1>whether that means um you know, further trouble ahead, even

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<v Speaker 1>though China's reopening perfect though when you look at the airlines,

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<v Speaker 1>I mean, what we have been telling investors in the

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<v Speaker 1>last few few months is that China's airline recovery is

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<v Speaker 1>in a cycle of its own. Given that given the

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<v Speaker 1>pent up demand that you would see as soon as

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<v Speaker 1>China reopens, and perhaps they they would not be impacted

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<v Speaker 1>as much by the recession. Fear that you would see

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<v Speaker 1>some of the some of the airlines in the U

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<v Speaker 1>s or Europe will have to go through. So with

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<v Speaker 1>respect to the potential recession, it will be perhaps the

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<v Speaker 1>global trade which will take a more front because for them,

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<v Speaker 1>the Western the Europe or the US is far more

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<v Speaker 1>important than China. But so far as airlines is concerned,

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<v Speaker 1>I think they will be able to navigate navigate next

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<v Speaker 1>year pretty smoothly given the pent of demand. And but

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<v Speaker 1>how about the consumer though, how is their strength likely

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<v Speaker 1>to remain robust as inflation and pressures rise? And I've

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<v Speaker 1>got to point out air tickets cheap at the moment

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<v Speaker 1>as well, particularly in my part of the world. So

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<v Speaker 1>how's the recovery going to go if we have high

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<v Speaker 1>airfares and nervous consumers now? Absolutely, and that that's the

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<v Speaker 1>message that we are trying to get across. So in

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<v Speaker 1>many of the markets where you have already seen the

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<v Speaker 1>unlist of pent up demand, all of these things will

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<v Speaker 1>come into play. I mean, if you look at some

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<v Speaker 1>of the different markets where your airline capacity is approaching

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<v Speaker 1>pretty much close to back to two nineteen level, all

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<v Speaker 1>of these these things will come into play. But when

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<v Speaker 1>we look at the recovery out of China, the fact

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<v Speaker 1>that in the month of October they are only handling

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<v Speaker 1>about five percent equivalent of international capacity, I mean, if

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<v Speaker 1>the interest of capacity goes to going into the next year,

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<v Speaker 1>there will be a sufficient amount of pent up demand.

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<v Speaker 1>And to your point, probably what we would see what

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<v Speaker 1>we have already seen the last twelve months in the

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<v Speaker 1>in the markets which has reopened the post COVID is

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<v Speaker 1>a shifting perhaps a consumption spending. So your overall wallet

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<v Speaker 1>maybe getting the pinch, but probably you will still try

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<v Speaker 1>to take your next trip perhaps will be will be

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<v Speaker 1>adjusting some other part of your wallet. Let's broaden the

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<v Speaker 1>conversationation a little bit away from air transport and air

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<v Speaker 1>freight to maybe looking at shipping overall shipping. Is it

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<v Speaker 1>going to stay tough for dry bulk at least for

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<v Speaker 1>the next half year in general? I mean when we

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<v Speaker 1>talk about dry ball, China is is very very critical

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<v Speaker 1>and with that regard a lot depend upon what what

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<v Speaker 1>would be the key driver for China's recovery going into

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<v Speaker 1>next year, because what we have seen this year, particularly

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<v Speaker 1>with this with the slowdown in the property sector, the

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<v Speaker 1>still demand has weakened, which is pretty much the single

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<v Speaker 1>largest driver for iron't ore. So our our views that

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<v Speaker 1>going into the next year, perhaps some of the larger

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<v Speaker 1>size of vessels, which Escape size and Panamaics vessels might

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<v Speaker 1>outperform the smaller size of vessels which is Handy Mix

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<v Speaker 1>and Panamax, which are largely depending on the rest of

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<v Speaker 1>the world recovery, which is where we are facing the headwind.

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<v Speaker 1>Um is there a potential risk as well around disruption

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<v Speaker 1>at ports as people go off sick with COVID and

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<v Speaker 1>so I would say that we have seen a series

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<v Speaker 1>of disruptions over the last two two and a half year,

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<v Speaker 1>and when it occurred for the first time, whether it's

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<v Speaker 1>since Shanghai or in Nengbo, it was disrupting. But I

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<v Speaker 1>think with time the industry started to appreciate that cargo

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<v Speaker 1>must move on, and we have seen a lesser and

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<v Speaker 1>lesser impact with every every wave of COVID disrupting the

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<v Speaker 1>supply chain. Going into next year, probably where we see

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<v Speaker 1>the impact will be much milder because their demand is

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<v Speaker 1>unlikely to be as strong as it was in one

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<v Speaker 1>where basically the tight supply and higher than average demand

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<v Speaker 1>created that spike in the freight rate. I give you

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<v Speaker 1>twenty seconds per USh um. Does reshoring and French shoring

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<v Speaker 1>mean a lot less global trade going forward? And short

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<v Speaker 1>answer is no. I mean we have been hearing about

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<v Speaker 1>about restoring near shoring pretty much since global financial crisis,

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<v Speaker 1>and if you see the export China's export share in

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<v Speaker 1>twenty one, it has been the highest ever. So yes,

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<v Speaker 1>we will see extension of supply chain, and which would

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<v Speaker 1>mean that more and more low and manufacturing will move

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<v Speaker 1>to perhaps via Thaighland or perhaps Global Equity Secretar ahead