Emerging Markets

China Eases Pandemic-Induced Border Controls With Hong Kong – Wealth Managers React

Tom Burroughes Group Editor 9 January 2023

China Eases Pandemic-Induced Border Controls With Hong Kong – Wealth Managers React

China has loosened controls on travel to Hong Kong as the pandemic regulations are eased and wealth managers predict that the sectors likely to benefit most from the change. China's zero-Covid policy has come at a heavy price in lost economic output and freedom – a significant drag on the Asian giant's business sectors.

Hong Kong’s border with mainland China re-opened yesterday – coinciding with Beijing’s removal of most pandemic-related controls on inbound travellers.

Easing controls will mainly boost tourism-related industries (online travel agencies, hotels, and airlines) and some financial service providers, as noted by Julius Baer and other wealth managers late last week. Selected shopping malls, retailers, and telecommunication stocks should also benefit from the shift. 

“Once again, the border reopening is vital to the Hong Kong economy, as both business and leisure travellers who are travelling between Hong Kong and China have dropped more than 90 per cent vs the pre-pandemic period,” Eric Mak, equity research analyst for Asia, Julius Baer, said.

China is ending most pandemic-related measures for inbound travellers and replacing these with a new 48-hour pre-departure PCR test requirement. 

“This should significantly remove the friction associated with mainland travellers returning from overseas and both business/leisure travellers heading to China. More international flights in/out of China should be added back gradually throughout 2023, subject to the Covid-19 situation and passenger demand,” the Julius Baer analyst said.

The most crowded land checkpoint (Luohu Port) will not be included in the first phase of the reopening, and the highspeed railway will resume services on 18 January. A pre-departure Covid-19 screening test (taken within 48 hours) is needed. Also, there will be an initial daily quota of 60,000 travellers on each side of the border.

“We are very encouraged to see the re-opening of China and Hong Kong’s shared border after such a long time. Currently, there is a quota of 60k people per day, which is actually quite tight relative to the pre-Covid levels. Indeed, in 2019 daily cross-border visitor traffic ranged between 100,000 and 200,000, so the current quota is equivalent to around 30 to 50 per cent of `normal capacity,’” David Townsend, managing director of EMEA business at Value Partners Group, said.

“The adoption rate has been significant. Within 14 hours of the opening of the appointment system, there had already been about 290,000 appointments made, indicating that there is a very strong demand for travel,” Townsend continued. “Our analysis shows that during Chinese New Year, which is two weeks from now, there is a 260 per cent year-on-year growth in `outbound’ travel for the Mainland Chinese. Hong Kong is one of the top 10 destinations.”

“From an investment standpoint, we are bullish on the consumption/retail sector in the Hong Kong market, both in terms of discretionary and staples, as we expect rising visitors' traffic will bring strong growth in revenues,” he said. “While some of these stocks have already rallied on the news, there is likely to be further upside as consensus has yet to reflect this positive development. Overall, we are overweight in selective high-quality names in the sector and well positioned to benefit from a retail recovery.” 

Ronald Chan, founder and chief investment officer at Chartwell Capital, the, Hong Kong-based investment firm, said: “The border reopening announcement between Hong Kong and mainland China was made late last month, and since then many stocks have rebounded nicely. For example, some property companies that have a large proportion of their portfolio in shopping malls and rental assets surged by 10 to 15 per cent.”

“At the same time, retailers such as jewellery companies and healthcare-related companies with beauty clinics also posted nice gains, rising over 20 per cent. In my view, some stocks have gone ahead of themselves and are now pricing in a base or bull case scenario. As sentiment remains strong, there is no point to sell down right away, but be watchful of any pullbacks.” 

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