Are Chinese travel companies bellwethers?

Ivan Xie explains why he's watching Chinese travel firms for signs of a global economic recovery.

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"Because COVID-19 originated in China, this nation first instituted a comprehensive quarantine plan—and it's been the first to begin easing those restrictions," says Ivan Xie, co-portfolio manager of Fidelity® China Region Fund (FHKCX), alongside Stephen Lieu.

China's consumer spending has begun to gradually recover, Xie says, although travel and hospitality segments remain depressed. This is partly due to customer demand and because of travel restrictions imposed by other countries, he says.

The managers took advantage of some good values here during the spring, including TravelSky Technology (TSYHF), a company they call the leading provider of information technology to China's airline and tourism industries. They say this company has a monopoly among Chinese airlines and airports.

"Fundamentals have yet to improve, but they could once frequent air travel resumes," Xie says.

Also illustrative, the managers added a position in casino operator Wynn Macau (WYNMF) for the fund. As of May 31, Xie says the Chinese government and Macau's regional government were working toward relaxing the travel ban and quarantine currently impacting Macau's casinos.

"I think each of these holdings, among others, could offer more upside than downside longer term, given their attractive valuations and potential for revenue growth," Xie says.

Fidelity® China Region Fund held securities mentioned in this article on May 31, 2020. As of this date, TravelSky Technology accounted for 0.80% of fund assets and Wynn Macau made up 0.57%.

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