China’s Stock Market Crash – Effect on Tourism

China’s Stock Market Crash – Effect on Tourism

10 July, 2015 - Uncategorised

image source: quartz.com

Since mid-June China’s two main stock markets the Shanghai Composite and Shenzhen A-Shares have been in freefall, which has prompted the Chinese central government to step in and institute financial controls and halt share trading in order to stabilize the market and investor confidence. After a 12 month period of what seemed like unimpeded growth, the last month has seen 30% of the stock market value wiped out, valuing $3.4 trillion – nearly 10 times the level of debt currently owed by the Greek government.

The majority of investors in the Chinese stock market are not the city slicker trading business types one would expect, but rather 80% of Chinese stock market investors are in fact millions of working class and middle class Chinese individuals. These individual investors have invested large portions of their savings and the financial windfalls generated from their investments were used to fund purchases such as cars, property and overseas travel.

So does this mean China’s growing tourism industry is in for a slump?

No, and there are also a number of reasons why the stock market crash in China might even be a good thing for foreign countries:

China’s stock market is second fiddle – Unlike the London and New York Stock Exchanges, the majority of companies listed on the Chinese stock markets are medium sized Chinese firms that primarily operate domestically. Though many of China’s big publicly traded companies like Sinopec and China Mobile do trade on them, the vast majority of major Chinese firm also list on foreign stock exchanges such as London, New York and Hong Kong. This means the Chinese stock market crash, while significant, is less significant to China then if the London Stock Exchange were to have a similar crash to the UK, which would be catastrophic.

The market is still high – Despite the massive loss, the stock market is in fact still more than 50% up from where it was last year, meaning that investors are still more than 50% better off than they were last year. The only real net losers would be those who invested in the 3 months running up to the crash.

Wealthy are more diversified – The vast majority of investors where Chinese working to middle class investors. China’s upper middle class to affluent and HNW individuals that invest in stocks, like any HNW stock investor, have diversified investments on international stock exchanges, as well overseas property and business investments. Meaning it is unlikely that they will have taken that big of a hit if any, no Chinese millionaires of billionaires are going to go bust over this crash. If there is to be a drop in tourism is more likely to come from the lower income groups and to lower cost short haul destinations such as Thailand, Philippines and Malaysia.

Travel is a priority – Like with the UK during the financial crisis, crash or no crash, younger age groups in the 20-30s age groups, which make up more than half of China’s outbound tourists, prioritise their recreational holiday and are less likely to be heavily invested into the stock market. Even those taking a financial windfall hit, they will still be allocating a proportion of their disposable income to international travel

The international tourism market can relax, the Chinese tourists will still be coming to Europe and any loss will be coming from the lower economic income brackets. However, what’s more important for foreign markets is that the crash has shattered a lot of investor confidence amongst the Chinese in their domestic market. Even though government control measures seem to be holding, unpopular investor controls and the growing uncertainty of China’s economic stability (not size – it’s always going to be big) will likely mean a growing number of individual investors will be looking overseas for safer investments, such as foreign stocks, property and potential destinations for relocation. All of which are opportunities to consider.

For more specific information relating to how the stock market crash might effect Chinese tourism to your business, please contact Steven Bywater. E-mail: s.bywater@wei-ukconsulting.com or give us a call on +44 (0)2036423899.