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How the deflating $11.5 billion Chinese tourism boom can hurt these ASX stocks

Brendon Lau
tourist, Chinese, airport, holiday, flight, flying

The Chinese tourism boom is petering out at a time when our economy can least afford it.

While the news isn’t surprising as there were already signs that Chinese tourists are opting for other holiday destinations, a report in the Australian Financial Review on this issue will serve as a warning to investors about the risks facing stocks leveraged to this thematic.

But it isn’t only the Qantas Airways Limited (ASX: QAN) share price, Sydney Airport Holdings Pty Ltd (ASX: SYD) share price and and ARDENTLGLT/ORD UNRESTR NPV (ASX: ALG) share price that could be hurt if the number of inbound tourists from the populous Asian nation continues to slide.

Chinese tourism boom hitting a wall

The flow-on effect will be widely felt as this group accounts for more than 15% of the total inbound market and injects around $11.5 billion into the local economy.

But the number of Chinese visitors to our shores has been steadily declining over the past nine months and tourism operators quoted in the AFR do not expect a rebound anytime soon given the political and economic environment.

The bigger question for investors is whether the rate of decline will accelerate as the drop has been relatively modest thus far. Data from the Australian Bureau of Statistics (ABS) showed a 6.1% drop in short-term arrivals from China in April this year to 114,000 compared to the same month last year. The April figure was 1.7% lower than last month.

Why the Chinese are holidaying elsewhere

Tension between China and the US is help deflate the boom that some experts had predicted would run for years. The trade war is slowing the Chinese economy and that’s prompted its citizens to opt for cheaper holidays to near-by locations in Asia.

The analysts at Bank of America Merrill Lynch pointed out that Chinese visitor numbers to Cambodia jumped 53% and Indonesia rose 23% as Australia was sliding backwards over the first few months of 2019.

Meanwhile, some Chinese tour companies believe their government could punish Australia by discouraging its citizens from visiting because of our close relationship with the US. We also shouldn’t forget that the Turnbull government was quick to ban Huawei from building our 5G network and that won’t help relations between our countries.

Foolish takeaway

China hasn’t officially issued advice to avoid Australia but it has a track record of using such a strategy to punish other countries. It recently discouraged its citizens from visiting the US in response to the growing trade war between the nations.

What’s concerning is that the factors that are dragging on Chinese arrivals to this country aren’t likely to abate anytime soon and I won’t be surprised to see further declines given how fast and far the number has increased by over the past few years.

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Motley Fool contributor Brendon Lau has no position in any of the stocks mentioned. Follow him on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Sydney Airport Holdings Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019