New bullet train is a shot-in-arm for Cathay Pacific

Business | Ivan Tong 24 Sep 2018

The Hong Kong section of the high-speed rail network opened yesterday with local travelers praising the speed of the trains and the well-organized station.

The stock market in turn will be considering whether there are any stocks which stand to benefit from the high-speed rail link.

However, the rail link is a large-scale infrastructure project that has been rolled out over a period of years rather than something that has happened suddenly and therefore is unreasonable to expect that the launch will have a big impact on the stock market in the short term.

However, retail investors still can pay attention to some local retail stocks, tourism stocks and hotel stocks which are directly related to the high-speed rail, as there may be some short-term speculative opportunities.

In terms of retail stocks, as the Chinese Golden Week is fast approaching, Sa Sa International (0178), which has rebounded this year, should be a good bet.

As for tourism stocks, there are a few listed companies mainly engaged in short-term travel in the mainland. China Travel International Investment Hong Kong (0308) is one of them and worthy of attention.

There are currently a number of high-speed rail infrastructure stocks listed in Hong Kong including CRRC (1766), China Railway (0390), China Communications Construction (1800) and Zhuzhou CRRC Times Electric (3898).

Ahead the launch of the high-speed rail link, shares in these companies outperformed the Hang Seng Index last week with an average increase of 7 percent.

But in my view, it will be difficult for them to maintain the uptrend, as they have large market values and their core businesses are less affected by the opening of the high-speed rail, although they may benefit from market sentiment in the short-term.

In addition, I heard recently that some brokerage firms are worried the high-speed rail will affect airlines including Cathay Pacific Airways (0293), because it makes travel between China and Hong Kong more convenient and will attract more people travel by rail instead of plane.

Conversely, the high-speed rail will also expand the passenger catchment area for both Cathay Pacific and Cathay Dragon and grow their market pie.

For example, residents from the Greater Bay Area could take a one-to-two-hour ride to Hong Kong and then fly overseas.

As long as Hong Kong International Airport's status as a hub remains unchanged with many international flights, the airlines may become beneficiary stocks and I've heard that several airlines are eyeing more business from the Greater Bay Area.

I think fears of the high-speed rail stealing business from airlines is overblown.

Chief executive Carrie Lam Cheng Yuet-ngor was very forthright about her opinion when asked if she would give up flying in favor of the bullet train link for official visits to Beijing.

She immediately replied that it would be more difficult to travel by high-speed rail as it takes eight to nine hours - and more than double the time of flying - to Beijing, a concern shared by many businessmen.

According to mainland statistics, the catchment area of the high-speed rail is generally limited to a four-hour journey.

From the north of Hong Kong, Wuhan is already testing this limit, so destinations beyond this four-hour trip would still remain in the catchment area for airlines.

If you really want to talk about stocks that might be negatively affected by the link, I think these could include Hopewell Highway Infrastructure (0737).

For, once the high-speed rail network really takes off, just how many of us would still want to travel to and from the mainland by bus?

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