Source: The Standard Author: Benjamin Scent 07/10/2008
Subject Concerned: Opinion Airlines Aviation Fuel
On Jul. 9, mainland airline stocks rallied after oil prices fell and the carriers introduced higher fuel surcharges.
But it may be a short-lived phenomenon as Morgan Stanley predicted the share prices will fall in the next 15 days.
China Southern led advances by airlines, jumping 5.9 percent to HK$3.06. China Eastern added 5 percent to HK$2.32, while Air China rallied 5.4 percent to end the day at HK$3.88.
"It's a knee-jerk reaction to the drop in oil prices," said Phillip Securities director Louis Wong Wai-kit. Oil prices fell 3.8 percent to HK$136.04 on Jul. 8 but rose 1.2 percent to HK$137.68 on Jul. 9.
China Southern and Air China were also boosted by their plans to raise surcharges on overseas flights by up to 38 percent.
CLSA analyst Robert Bruce said the strong rise in airlines "should present a great opportunity" for investors to exit their positions in the stocks.
Morgan Stanley predicted the three airlines "will fall in absolute terms over the next 15 days."
The scenario has a 70 to 80 percent probability, said analyst Edward Xu.
Xu cited the recent 9 percent, or 720 yuan (HK$820) per tonne, hike in domestic jet fuel prices as negative for airlines. Higher jet fuel prices took effect on Jul. 1, aviation industry officials confirmed.