There’s been a lot in the news lately about the huge falls in share prices of Australian companies that rely on growing demand for their foodstuff products from the Chinese and broader Asian middle classes.
As has been seen the a2 Milk Company Ltd (ASX: A2M) and others like Treasury Wine Estates Ltd (ASX: TWE) are all vulnerable to regulatory changes in China or changing consumer preferences, which means investing in them carries significant risk primarily due to their rich valuations.
However, smart investors may be able to get exposure to the fast-rising Asian middle class with less risk and more return by looking to companies on better valuations that operate closer to home.
In fact last night the Australian Financial Review reported how the latest numbers from the Australian Bureau of Statistics showed booming inbound tourism numbers for the year to November 2016.
According to tourism bodies Chinese visitor numbers were up nearly 19%, with visitors from Malaysia (up 23%), India (up 21%) and South Korea (up 20%), among other populous nations delivering surging visitor numbers. Notably, only a tiny lift in visitor numbers can translate into a big impact on the bottom lines of local companies leveraged to tourism spending.
The growth in visitor numbers is also a medium-term trend that is likely to keep accelerating barring a large and sustained rise in the Australian dollar, so here are a few ways to position your portfolio to profit.
SKYCITY Entertainment Group Limited-Ord (ASX: SKC) is the operator of Auckland’s only dominant casino and hotel complex that offers heavy leverage to the growth of inbound Asian tourism. The stock looks good value at $3.77 and boasts an outstanding 5.3% yield.
Crown Resorts Limited (ASX: CWN) has excellent leverage to the growth of inbound tourism via its multiple hotel and casino operations. However, it appears to have some serious problems in the important high-roller market, which means I would keep its shares on the watch list for now.
SeaLink Travel Group Ltd (ASX: SLK) operates popular tourist cruises across Sydney Harbour, Queensland and South Australian waterways. It’s also been a big beneficiary of falling diesel (linked to oil) prices as ferry fuel is one of its primary operating overheads. The weaker Australian dollar has also allowed for a bit of price lifting (gouging) as overseas tourists effectively have more spending power. Unfortunately, the stock looks on the expensive side at $4.56.
Auckland International Airport Ltd (ASX: AIA) is a quality asset that is experiencing such strong visitor growth it’s in danger of being overwhelmed. Still that’s not a bad problem to have and the stock has pulled back significantly since the election of Donald Trump to sell for $6.37 recently. It boasts a 3% yield and looks good long-term value.
Sydney Airport Holdings Ltd (ASX: SYD) needs no introduction and like Auckland Airport it has been sold off on the prospect of rising bond yields across the world. It’s true that the stock looks expensive at $5.97, although if another Trump-inspired sell off takes it below $4.90 again I will be waiting to buy.
All these new visitors will also need somewhere to stay and there’s a couple of hotel-focused businesses operating in Australia and trading on the ASX that I think look such good value at current prices, I’m happy to buy them myself now. Unfortunately, the Foolish trading rules forbid me from naming them, but all will be revealed soon.
Out of those named above I would favour SkyCity on current valuations.
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Motley Fool contributor Tom Richardson owns shares in a2 Milk.
You can find Tom on Twitter @tommyr345
The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.