June 26, 2014 (Chinavestor) Money flows reveal two different stories for Chinese utilities and transportation stocks. This latter offers entry position given low valuation and stable money flows, while utilities advanced too much without fundamental support. This is good news for China Eastern Airlines (NYSE:CEA) and China Southern Airlines (NYSE:ZNH), among others, but not so good news for Huaneng Power International (NYSE:HNP).
The first chart displays how much the Chinese transportation sector index fell in the last nine months. The index is down as much as 15% yet money flows remained constant with a slight improvement. The disparity between the two suggests there is a real chance for airliners, shipping lanes and railway stocks to pop up.
China's aviation industry is booming yet stock prices are under water. According to the latest statistics, China's airlines carried 350 million passengers in 2013, an increase of 11% YoY.Chinese airliners are on a shopping binge to fulfill demand. China Eastern Airlines (NYSE:CEA), the second largest by fleet size, just announced a purchase of 80 Boeing (NYSE:BA) 737 jets for $8 billion. China's largest airline, China Southern Air (NYSE:ZNH), placed a similar size order from Airbus a month before.
Based on money flow analysis, there is significant upside potential for CEA, ZNH, according to the following chart.
To demonstrate how good transportation stocks look compared to other sectors, one has to take a look at Chinese utilities. Huaneng Power International (NYSE:HNP), by far the most dominant Chinese utility listed in the US, advanced 35% after the March dip yet money flows were virtually flat. This suggests HNP is overvalued and is vulnerable to downside risk. See yawning gap between money flows and index.