Want a chance to profit from a rising yuan? China's airline stocks are one trade to consider

05/02/2011 5:24 pm EST


Jim Jubak

Founder and Editor, JubakPicks.com

Traders have latched onto the shares of China’s airlines as a way to profit from any appreciation in China’s currency.

The idea is simple: Since oil is priced in dollars, every increase in the value of the renminbi against the U.S. dollar makes oil cheaper for Chinese companies. And airline stocks are extremely sensitive to changes in fuel prices since fuel makes up the single biggest cost at most airlines.

For example, a 1% gain in China’s yuan against the dollar adds $92 million to Air China’s earnings, the company estimates. China Southern told investors at the end of March that every 1% appreciation for the yuan against the dollar adds $400 million to profits.

China’s three biggest airlines all trade on U.S. markets. China Southern, the largest Chinese airline by fleet size, trades as an ADR (American Depositary Receipt) under the ticker ZNH. China Eastern Airlines, China’s second largest airline by fleet size, trades as an ADR under the symbol CEA. Air China, China’s largest international carrier, trades over-the-counter under ticker AIRYY or in Hong Kong as 753.HK.

Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did not own shares of any stock mentioned in this post as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/


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