Lie low and grow, stand up and be shot

Business | Ivan Tong 14 Aug 2019

More than 300 flights were canceled yesterday at Hong Kong International Airport as thousands of protesters continued their siege of the aviation hub.

As the airport is not listed, Cathay Pacific Airways (0293) bore the brunt of the fallout while the biggest beneficiaries were A-share listed airport operators and aviation-related stocks.

Shenzhen Airport (000089: Shenzhen) surged 10 percent while Guangzhou Baiyun International Airport (600004: Shanghai) climbed 4.48 percent to a fresh high and Hainan Airlines (600221: Shanghai) rose 2.7 percent yesterday.

I did not expect these sleeping A-shares to rally, driven by demonstrators occupying HKIA.

The son of a friend of mine was due to fly back to Hong Kong by an AirAsia flight on Monday afternoon but the airline needed to reroute, landing via Shenzhen Airport, and I suspect it was just one among many stakeholders which sought other options over the last two days.

If the chaos at the airport continues, many tourists who intend to fly around the world through HKIA might well change their travel plans and instead access airports in Shenzhen, Guangzhou and Shanghai through the high-speed rail link.

These mainland airports have their sights set on becoming international hubs and continued chaos at HKIA might provide them the opportunity they need.

While radical protesters demanding more independence don't seem to care that Hong Kong's economy is headed for a recession, the irony is their actions will help further integrate Hong Kong with the mainland by driving Hongkongers to give up their own airport in favor of those across the order.

Though the A-shares market declined yesterday, Shenzhen Airport surged over the 10 percent limit, thanks to the protests.

Was the stock overbought?

It's hard to say, as it really depends on what happens next in Hong Kong. If political tensions worsen, we can't underestimate how much it will benefit neighboring airports.

However, apart from a few aviation stocks like China Southern Airlines (600029: Shanghai) and China Express Airlines (002928: Shenzhen), other Hong Kong-listed stocks like Air China (0753) and China Eastern Airlines (0670) did not follow the trend, due to the pressures of yuan depreciation.

The mainland airports did not have to do much but sit back and gain from the chaos while Cathay Pacific, which stood up to deliver, got thrown under the bus.

Yesterday, Cathay Pacific shares extended their decline to close at their lowest since April 2009, after the Civil Aviation Administration of China last Friday ordered the airline to suspend personnel who engaged in "violent acts" and been charged for related crimes from working on flights to the mainland or flights operating in Chinese airspace, on the grounds that their actions were detrimental to aviation safety.

We should be aware that when airplanes take off from HKIA, they immediately enter mainland airspace. Therefore, if Cathay Pacific is targeted by Beijing, its business will be severely hit.

Little wonder then, that more than HK$1 billion has been wiped off the market cap of Cathay Pacific and other listed Swire Group subsidiaries.

Cathay Pacific must tell the aviation regulator that it is on top of the situation and try its best to calm the waters.

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