Insight

Previewing China's “Golden Week” holiday – Data point to sustained consumption recovery

Previewing China's “Golden Week” holiday – Data point to sustained consumption recovery

As suggested by booking data from many online travel agencies, China's tourism industry is likely to see a strong upcoming Golden Week holiday as it’s the first May Day holiday with no travel restrictions after 3 years of COVID pandemic. 

For example, as of April 20, searches for domestic flights on a major Chinese online travel service agency had risen more than 290% year-on-year (yoy), recovering to 110% of the same period in 2019.1 Searches for hotels increased more than nine times yoy and nearly doubled compared with 2019.1

Domestic bookings, including accommodation, for the five-day May Day holiday on a major online retail and travel agency increased 200% compared to 2019 as of April 10, the highest in five years.2

Some investors are worried that a potential COVID 2nd wave may temporarily hurt the pace of recovery. However, we expect the impact to be very limited and it is highly unlikely that the government would go back to tighten up social distancing measures again.

Key beneficiaries

Hotels, airlines and duty-free stores are the key beneficiaries from the expected strong upcoming May Day holiday. Hotels have high earnings elasticity, with sharp increase on hotel rates and lower vacancy rates, the earnings outlook is likely to be positive in 2023 for the hotel sector in China A-share market.

Hot overseas trips booking could also benefit some of the global luxury brands as Chinese tourists will be traveling outside China to spend on high-end duty-free products.

Implications to the economy

China’s Q1 economic data surprised the market on the upside especially the double-digit retail sales growth in March3. However, many investors are worried that the strong March retail data was just reflecting a one-off pent-up consumption demand.

The good reading from the travel booking data on the upcoming May Day Golden Week holiday suggested that the recovery of consumption in China has more legs to go at least for the second quarter.

Quite a few brokers have recently upgraded the GDP forecasts to above 6% after the strong Q1 economic data.

Consumption recovery is expected to continue in Q2 with the buoyant travel booking data for May Day holiday, and property sector continues to recover with more policy relaxation at the local government level as well as the liquidity support from banks. 

The second quarter GDP growth rate is expected to be quite strong YoY considering a low base in 2022 due to the Shanghai lockdown.

Investment implications

The China A-share market has been mainly driven by AI-generated content (AIGC) related themes and SOEs valuation rerating in the past one month, and the market has had some correction mainly due to US-China tensions in the past one week.

We believe that the market focus will be gradually shifted from themes and geopolitics to economic data and corporate earnings as China has already returned to the pre-pandemic economic growth trajectory after 3 years’ distortion from the pandemic.

Reference:

  • 1

    Source: Global Times, as of Apr 23, 2023

  • 2

    Source: China Daily, as of Apr 12, 2023

  • 3

    Source: Macquarie Research, data as of April 18, 2023

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