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Airlines shine as energy falls

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bear_bull July 27, 2015 (Chinavestor) Chinese energy stocks continue to suffer as oil prices tumble. Petrochina Co. Ltd. (NYSE:PTR), China's largest oil producer, fell below $100 a share and is down 13.6% YTD. Who benefits? Airliners! China Eastern Airlines (NYSE:CEA) advanced from $15 earlier the year to over $50 last week. Industry leader China Southern Airlines (NYSE:ZNH) fared even better!

 

There is a fear of an oil supply gut now that Iran is back in the game. Additionally, Chinese equities continue to tumble, undermining growth outlook for China. The Shanghai Composite Index (SHA:000001) fell 8.5% on Monday, the biggest such drop since 2007!

How long will Chinese airliners shine? Good news for investors is that strong money flows have accompanied stock price increases. See chart below. This suggests China Eastern Airlines (NYSE:CEA) may be able to reclaim the $50/share price, the highest for the last eight years. Remember, kerosene is the simple largest cost item for airliners and when oil is chap, cost structure significantly improves. This is behind the spectacular rally of CEA and ZNH.

MF_trans_july27

What's good for airliners is not good for oil stocks. The Chinese energy sector have been unusually volatile lately. The direction has been negative for both money flows and the broader index. Petrochina Co. Ltd. (NYSE:PTR) is the elephant in the room along with Sinopec (NYSE:SNP) and CNOOC Ltd. (NYSE:CEO). Petrochina Co., Ltd. (NYSE:PTR) fell the hardest among China's oil triumvirate YTD, followed by CEO and SNP.

MF_energy_july27



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