Invesco: China Golden Week: recovery post COVID-19

30 September 2020 | Mike Shiao, Chief Investment Officer, Invesco Asia Equity Investment Team

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Invesco China Equity Fund (UK)

In the post COVID-19 era, domestic consumption plays a bigger role in driving economic recovery. Asia, especially North Asia, has the advantage of boosting domestic consumption as the COVID-19 pandemic is largely under control.

The upcoming Golden Week in China could be a good indicator to gauge recovery of Chinese consumption. According to data from online travel booking website Qunar¹, China’s domestic air traffic volume is expected to reach a record high during the upcoming “golden week” holiday - domestic flight trips made between Oct 1 and 8 may exceed 15 million, up 10% yoy.

The encouraging pre-booking data of air tickets and hotels so far imply positive normalization trends, which is a key driving force of Chinese consumer activities including dining, shopping and entertainment in the post-pandemic era.

With better virus containment, China resumes consumer activities ahead of other parts of Asia. That said, we also observe positive trends in Korea, Taiwan, and India signalling domestic consumer recovery at different pace.

Consumer companies in Asia are quick to offer discounts and incentives aiming to capture every dollar of the pent-up spending and customer loyalty by offering elevated customer experience. We believe the latest development in Asia consumerism brings good investment opportunities.

China consumption activities resumed

• Booking data show positive signs in consumer normalisation patterns from various leading online travel agencies platforms.
• Meituan (a leading e-commerce platform in China) reported 78 million domestic China hotel room nights stayed from Apr to Jun 2020, which was almost triple Booking’s results and four times that of Expedia on their worldwide room nights during the same period².

• Moving towards the end of Q3, advance online travel booking for Golden Week two weeks before the holiday season in China reiterated our investment thesis of China’s strong Vshape rebound of consumer retail activities.

• According to a leading Chinese online travel agency³, air ticket booking volume has exceeded 90% of the same period last year. Hotel bookings also saw rising demand, as overall average daily rate per room nights (ADR) grew by 20-30% yoy.
• Fliggy⁴, an online travel platform owned by Alibaba, indicated ADR increases by 65% compared to August this year.
• The encouraging pre-booking data imply the positive normalization trends, which is a key driving force of Chinese consumer activities including dining, shopping, and entertainment, in the post-pandemic era.

Consumers are trading up, demanding better quality and experience

• Another key observation was the acceleration in consumers’ trade-up pattern in China - higher quality accommodation, private transportation, and more customized travel experience post COVID-19.
• Over 80% of orders on a leading online travel agent in China go to high-end products (4- star & 5-star) for better service and experience⁵. Private and small group tour mix rises to two-thirds of total group tours⁶.
• Search engine in China shows that self-driving is the most popular domestic travel activity during the Golden Week⁷, which has pushed up car rentals.
• Meituan published a new 2020 version of its “Must List Series”, which helps consumers to select restaurants based on increasing concerns for hygiene factors and quality induced by the pandemic⁸.
• Companies innovate, stay close to customers and ahead of competitors, to provide elevated customer experience to capture the rising consumer demand.

Asian economies are on the path of recovery at different pace

• While China is leading the recovery of the region, other countries / economies in Asia are on the path of recovery at different pace.
• In Taiwan, consumer confidence improved for the third consecutive month⁹, coming in at 71.3 in August, vs. 69.4 in July, led by the expectation of durable goods consumption. Meanwhile, retail sales picked up to +3.3% YoY in July vs. +0.1% YoY in June.
• In Korea, we see encouraging signs of domestic travel bottoming out from recent lows¹⁰.
• In India, google mobility indicators show recovery path after different phases of country lockdown, as seen in pickup in retail and recreation as well as grocery and pharmacy¹¹.
• We believe the macroeconomic data are tracking normalisation of consumption activities at different levels in Asia.

Conclusion

Pre-booking data of Golden Week in China point us to dynamic behavioural changes which are likely to exemplify similar patterns for other parts of Asia.

The mobility normalisation uptrend in Asia consumerism brings us diverse investment opportunities. We believe it is time to buy into compelling companies to tap into the consumer resumption and trade-up trends in China and Asia consumer demand.

¹ https://www.scmp.com/business/china-business/article/3102133/golden-week-record-number-chinese-travellers-planning

² Pandaily.com, September 1, 2020.

³ Sino.com, 11 September 2020.

⁴ “2020 National Day Golden Week: Pent-up Demand to Unleash During the Lengthened Holiday” Citi Research, 14 Sep 2020

⁵ “2020 National Day Golden Week: Pent-up Demand to Unleash During the Lengthened Holiday” Citi Research, 14 Sep 2020

⁶ “2020 National Day Golden Week: Pent-up Demand to Unleash During the Lengthened Holiday” Citi Research, 14 Sep 2020

⁷ Sino.com, 11 September 2020. 

⁸ “Meituan - Big profit beat”, CLSA, 21 August 2020.

⁹ Morgan Stanley Research, Taiwan Macro and Strategy Chartbook, 14 September 2020.

¹⁰ MoTIE, Morgan Stanley Research, 22 September 2020

¹¹ Morgan Stanley Research, India Economics - Macro Indicators Chartbook, 20 September 2020.

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