Let's get to our guest. We're chatting with Parish Jay Next, Global equity sector heads Shipping in Ports, head of Transport Research at HSBC with a focus on the Age Pacific. So Parash, a lot of investors will be looking at these um these sounds of of reopening in China and trying to figure out ways to to play it. One way it might be the airlines. We can talk specifically about Hong Kong Airlines and and also the China airlines.
I think let's start with the China airlines. There was still a lot of domestic activity that that the airlines could could look forward to, but with nobody traveling, international was was pretty much out and I'm curious about what it has to do with cargo. Uh. Now that there's a promise of reopening, does it make those equities China,
Southern China, Eastern such look much better? As we have been saying when it comes to investing in airlines, is the news flow with drives the share price, and that has been the case for Kathy in the start of the year. That certainly is is the case for the
big three Chinese airlines at the moment. I mean, we have been selectively buyers of these names all through with the simple premises that they are too big to fail and the China reopening was a matter of event rather than if, And now with perhaps one inch closer to the reopening than we have been in the last three years, I think they become one of the leeward play to to to play this theme for many of those investors.
In terms of Kathay, how do you view its space of recovery into three We've seen some pretty decent rise for the share price as well in the past year, but we're still some way off the peak. When when do you see them getting back to potential profit and the share price climbing back to where it was pre COVID. Yeah, so two past to your question, So when will Cathy return into anvil profit? Which is next year, But on our numbers, Kathy is already making money even in this
quarter or the second half of twenty two. Of course, it was pretty much cargo lead, whereas the focus will shift to the passenger's side of the things in twenty three when Kathy has. Katay Has in their recent briefing said that they intend to achieve up to of their pre COVID capacity by the end of three and that that means that we probably will see a tight yield environment, given given the pent up demand that we have witnessed
across the market, particularly in Hong Kong. But what separates perhaps Kathy is a story from the Big three is that one of the biggest drivers for Kathy during COVID was a super strong cargo market, and as the cargo market rolls over it Brittin will take some of the shin away from the pace of recovery, which is no longer the case for the big three airlines. So, yeah, Kathy making money next year. With respected the share price,
we have a nine dollar fifty target. The stock has done well, we still see it's somewhat somewhat upside onto this name. But on an absolute level, I think now the big three airlines offer you a better return than Cathy. Yeah. I was just having to look at China Southern and it's actually pretty close to the highs of two. It's had a very strong rally here in the past two weeks, but it's of course far far away from the highs we saw back in two thousand and eighteen when the
trade war happened. Um So I want. I want to get your overall outlook for global trade next year and whether or not you know recession in the West, particularly in the United States, the biggest economy in the world, whether that means um you know, further trouble ahead, even though China's reopening perfect though when you look at the airlines, I mean, what we have been telling investors in the last few few months is that China's airline recovery is
in a cycle of its own. Given that given the pent up demand that you would see as soon as China reopens, and perhaps they they would not be impacted as much by the recession. Fear that you would see some of the some of the airlines in the U s or Europe will have to go through. So with respect to the potential recession, it will be perhaps the global trade which will take a more front because for them, the Western the Europe or the US is far more
important than China. But so far as airlines is concerned, I think they will be able to navigate navigate next year pretty smoothly given the pent of demand. And but how about the consumer though, how is their strength likely to remain robust as inflation and pressures rise? And I've got to point out air tickets cheap at the moment as well, particularly in my part of the world. So how's the recovery going to go if we have high airfares and nervous consumers now? Absolutely, and that that's the
message that we are trying to get across. So in many of the markets where you have already seen the unlist of pent up demand, all of these things will come into play. I mean, if you look at some of the different markets where your airline capacity is approaching pretty much close to back to two nineteen level, all
of these these things will come into play. But when we look at the recovery out of China, the fact that in the month of October they are only handling about five percent equivalent of international capacity, I mean, if the interest of capacity goes to going into the next year, there will be a sufficient amount of pent up demand. And to your point, probably what we would see what we have already seen the last twelve months in the in the markets which has reopened the post COVID is
a shifting perhaps a consumption spending. So your overall wallet maybe getting the pinch, but probably you will still try to take your next trip perhaps will be will be adjusting some other part of your wallet. Let's broaden the conversationation a little bit away from air transport and air freight to maybe looking at shipping overall shipping. Is it going to stay tough for dry bulk at least for
the next half year in general? I mean when we talk about dry ball, China is is very very critical and with that regard a lot depend upon what what would be the key driver for China's recovery going into next year, because what we have seen this year, particularly with this with the slowdown in the property sector, the still demand has weakened, which is pretty much the single
largest driver for iron't ore. So our our views that going into the next year, perhaps some of the larger size of vessels, which Escape size and Panamaics vessels might outperform the smaller size of vessels which is Handy Mix and Panamax, which are largely depending on the rest of the world recovery, which is where we are facing the headwind.
Um is there a potential risk as well around disruption at ports as people go off sick with COVID and so I would say that we have seen a series of disruptions over the last two two and a half year, and when it occurred for the first time, whether it's since Shanghai or in Nengbo, it was disrupting. But I think with time the industry started to appreciate that cargo must move on, and we have seen a lesser and lesser impact with every every wave of COVID disrupting the
supply chain. Going into next year, probably where we see the impact will be much milder because their demand is unlikely to be as strong as it was in one where basically the tight supply and higher than average demand created that spike in the freight rate. I give you twenty seconds per USh um. Does reshoring and French shoring
mean a lot less global trade going forward? And short answer is no. I mean we have been hearing about about restoring near shoring pretty much since global financial crisis, and if you see the export China's export share in twenty one, it has been the highest ever. So yes, we will see extension of supply chain, and which would mean that more and more low and manufacturing will move to perhaps via Thaighland or perhaps Global Equity Secretar ahead