Tourism: taking off in China and Japan

It’s August and everyone seems to be returning from holiday, on holiday or going on holiday. The roads – at least on the daily commute – are less congested, while the airports and ports are bustling. Tourism is alive and well in the UK.

Chinese tourists leapfrog Americans

Andrew Milligan, head of global strategy, at Aberdeen Standard Investments, says “China splashed out around $250 billion on tourism in 2016, leapfrogging the US to take the number one spot.

“Chinese companies, like online travel agent Ctrip, CITS (China International Travel Services) and Huazhu (previously China Lodging), which offer accommodation reservations, air ticketing and tour bookings, have profited from increases in both domestic and outbound travel.

“Currently, only around 10% of Chinese people have a passport, compared to about 40% in the US and more than 75% in the UK, so there is still considerable room for growth in international travel from the country.”

Aberdeen Emerging Market Equity fund holds both China International Travel Service Corp and Huazhu Group Limited.

Another Elite Rated fund, Fidelity China Special Situations, invests in Ctrip. Manager, Dale Nichols, says travel is an important theme for him in the investment trust. “We’re at a very interesting point in the development of the hotel sector, and also the airports, so I have pretty significant exposure to the overall travel theme,” he said. “The Chinese already make more than 120 million overseas trips per year and that continues to grow strongly. Ctrip is the biggest online travel portal and benefits from this trend.”

Japan warms up for the Olympics

Thailand and Japan were the most popular destinations for Chinese travellers, according to Andrew.

Japan is gearing up to welcome the world to the Olympic Games in Tokyo in 2020, with a massive promotional drive. Visa requirements have been eased, duty free programmes expanded and customs and immigration rules all changed to promote tourism and spur the nation’s overall economic growth.

As a result, the number of visitors to the country has tripled in the past five years, with growth rates suggesting the official target of 40 million by 2020 may not be too far-fetched.  Last year it welcomed  29 million foreign visitors, driven in no small part by Chinese tourists taking advantage of more frequent low-cost flights to Japan.

“Tourism is still a small part of overall consumer spending,” continued Andrew, “but it really matters in certain areas: foreigners accounted for 17% of hotel revenues in Japan; they were also responsible for more than 7% of department store sales and over 6% of medical and cosmetic retail expenditure.”

Baillie Gifford Japanese also has tourism as theme in the portfolio. The manager believes that there is substantial scope for Chinese tourist numbers in particular to grow from current levels, especially when you think that out of the 110 million Chinese outbound tourists in 2014, only 2% visited Japan. Even if this figure only doubles over the next couple of years, it should have a meaningful impact on Japanese businesses as they have a propensity to spend significantly more than other nationalities.

“While change is under way in the industry, tourism is hardly a new concept.” concludes Andrew. “Individuals have long experienced wanderlust and are likely to do so for generations to come. The old saying is that travel broadens the mind, but for investors, it is certainly worth keeping an open one towards the tourism sector.”

This article is provided for information only. The views of the author and any people quoted are their own and do not constitute financial advice. The content is not intended to be a personal recommendation to buy or sell any fund or trust, or to adopt a particular investment strategy. However, the knowledge that professional analysts have analysed a fund or trust in depth before assigning them a rating can be a valuable additional filter for anyone looking to make their own decisions. Past performance is not a reliable guide to future returns. Market and exchange-rate movements may cause the value of investments to go down as well as up. Yields will fluctuate and so income from investments is variable and not guaranteed. You may not get back the amount originally invested. Tax treatment depends of your individual circumstances and may be subject to change in the future. If you are unsure about the suitability of any investment you should seek professional advice. Whilst FundCalibre provides product information, guidance and fund research we cannot know which of these products or funds, if any, are suitable for your particular circumstances and must leave that judgement to you. Before you make any investment decision, make sure you’re comfortable and fully understand the risks. Further information can be found on Elite Rated funds by simply clicking on the name highlighted in the article.