Airlines Lead Gains on Rising Valuation: China Overnight

Chinese equities in New York rose the most in three months, led by China Southern Airlines Co. (1055), on speculation its six-week selloff was overdone.

The Bloomberg China-US Equity Index of the most-traded Chinese stocks in the U.S. added 2.7 percent to 99.94 in New York, the biggest gain since Nov. 15. China Southern, Asia’s biggest airline by passenger numbers, and China Eastern Airline Corp. (CEA) each added more than 5.5 percent. Online travel agency Ctrip.com International Ltd. rose for a fourth day while smaller rival eLong Inc. advanced to a one-month high. China Life Insurance Co. (2628) surged the most in seven months.

China Southern fell 18 percent in the six weeks to Feb. 6, sending valuations to 7.8 times reported earnings, the lowest in 19 months. China Eastern’s multiple dropped to a five-month low last week. Air passenger trips jumped 19 percent during the weeklong Lunar New Year holiday that started Jan. 31, government agency data Feb. 7 showed.

Chinese airlines “are underperforming right now, and it’s a valuation call,” Robbert Van Batenburg, director of market strategy at Newedge Group in New York, said by phone. “The travel and leisure markets are in general very attractive, and it’s where there is a lot of money flowing in.”

The iShares China Large-Cap ETF, the largest Chinese exchange-traded fund in the U.S., jumped 3.8 percent to $35.40, the biggest gain in three months, while the Standard & Poor’s 500 Index added 1.1 percent as comments by Federal Reserve Chairman Janet Yellen fueled bets the economy is strong enough to weather further stimulus cuts.

Price Estimate

Credit Suisse Group AG reiterated a buy equivalent for China Southern, with a price estimate implying a 62 percent surge in the next year, according to a report dated yesterday. Shares may gain on signs of yuan appreciation, the report said.

“If the financial pressure remains uneventful and it doesn’t lead to dramatic slowdown in the economy and the decline in property prices, then I don’t fear for Chinese consumer sectors and companies exposed to consumers,” Batenburg said. “There is financial pressure right now, but if it doesn’t develop into financial crisis, there’s not going to be a dent in consumer sentiment and consumer confidence.”

Boeing Co. (BA) delivered a record number of jets to China last year and expects to hand over a similar number of aircraft this year as growth in the world’s second-biggest economy spurs demand for air travel, Marc Allen, president of Boeing China, said in Beijing Jan. 22. China Southern took deliveries of 37 aircrafts produced by Boeing last year, the second-most among carriers worldwide, according to Boeing’s website.

Travel Agents

China Southern, based in Guangzhou, jumped 5.7 percent to $17.48, the most since November. Trading volume was twice the average of the last 90 days, according to data compiled by Bloomberg. Shanghai-based China Eastern, the nation’s second-biggest airline, jumped 5.5 percent to $17.63 on a third day of gains.

Ctrip, China’s biggest online travel agency, added 2.2 percent to $41.62, capping a 7.7 percent surge in the past four days. Elong, based in Beijing, gained 4.2 percent to $18.99, the highest since Jan. 9.

China Life, the nation’s biggest insurer, surged 7.1 percent to $42.48. The Beijing-based company is still down 10 percent on the year after declining 4.9 percent in 2013.

The Hang Seng China Enterprises Index (HSCEI) in Hong Kong rallied 2.5 percent to 9,856.85, reducing its year-to-date slump to 8.9 percent. The Shanghai Composite Index advanced 0.8 percent to 2,103.67 on its third day of gains.

To contact the reporter on this story: Elena Popina in New York at epopina@bloomberg.net

To contact the editor responsible for this story: Tal Barak Harif at tbarak@bloomberg.net

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