Local airliners were the bright spots yesterday thanks to an overnight plunge in international crude oil prices, bucking the generally negative sentiment on the main bourse, dealers said.
Shares of the nation’s two biggest carriers, China Airlines Ltd (CAL, 中華航空) and EVA Airways Corp (EVA, 長榮航空), shot up 4.38 percent and 6.73 percent respectively, Taiwan Stock Exchange data showed.
The benchmark TAIEX closed down 3.55 percent after a Wall Street tumble overnight amid increasing concerns over the strength of the global economy.
“Global crude oil prices have fallen from this year’s peak of US$120 a barrel because of a soft global economy and airlines will see their costs down substantially, easing operational pressure,” Henry Chen (陳志恆), a stock market analyst at KBC Concord Asset Management Co (康和比聯投信), said by telephone.
In New York, crude oil futures for November delivery fell about 6.3 percent overnight to US$80.51 a barrel, a six-week low.
CAL closed at NT$14.30 yesterday after 66.78 million shares changed hands, while EVA ended the day at NT$18.25 on trading volume of 53.03 million shares, stock exchange data showed.
Fuel expenses account for about 40 percent of the operating costs of the two airlines. Falling crude prices are expected to help the two airlines cut operating costs and improve their bottom lines in the second half of this year, dealers said.
Buying interest in the two stocks, which avoided the sell-off on the broader market, also resulted from hopes of higher demand for flights to and from Japan, as Taipei and Tokyo are expected to sign an open-skies agreement, they added.
The two carriers’ shares experienced a roller-coaster ride earlier this week. They both jumped on Wednesday on news that Taiwan and Japan were likely to sign an open-skies agreement, only to plunge on Thursday after government officials confirmed the two sides would not be signing the agreement yet because negotiations were ongoing.
Horizon Securities (宏遠證券) analyst Benson Huang (黃重善) said the strong buying in the two stocks largely reflected optimism that the two companies would benefit from falling crude oil prices.
“As the airline business will soon enter its peak season in the fourth quarter, lower fuel costs are no doubt a positive for the two companies,” Huang said.
Huang said that judging by the heavy trading volume in the two stocks, the buying probably came from institutional investors.
“It’s very likely that government-run funds stood on the ‘buy’ side today [Friday] in a bid to boost investor confidence amidst the jitters on global financial markets,” he said.
However, Huang cautioned that the global economic downturn has hurt demand for both cargo and passenger flights and that it would offset to some extent the potential benefits from cheaper fuel.
He said that even if Taiwan and Japan do sign an aviation agreement and add more flights, the prospect of a global economic slowdown would still cast a shadow over the two companies.
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