Covid vaccination or high levels of prior infection are finally driving a re-opening of the tourism sector, both in source markets – witness the recent loosening of restrictions in the US and UK – and destination markets – consider the acceleration of vaccination in the likes of Malaysia, Morocco and the Philippines (with Dubai already having one of the highest rates globally).
The valuation of tourism-exposed emerging equity markets in our coverage looks attractive relative to other major pockets of the EM universe.
We compare macroeconomic exposure to tourism with equity market valuation in the 17 individual countries in our EM coverage, where tourism is directly 5% or more of GDP.
The Philippines appears to offer the cheapest exposure within the group. Others that look relatively cheap are Egypt, Jordan, Georgia, Iceland, Jamaica, Mauritius and Thailand. We exclude the cheapest, Sri Lanka, because of its substantial FX rate risk.
Croatia and Vietnam look relatively expensive, while Dubai, Malaysia, Mexico and Morocco look close to relative fair value. We exclude Lebanon and Tunisia because of their substantial FX rate risk.
Tourism directly drives over 12% of Iceland's economy. The indirect impact, including spillover into retail and real estate, for example, is typically two to three times this. Data for the seasonal peak month of August shows 140% growth yoy. But that number could still double over the next couple of years if it simply matches the August peak seen in 2019.
There are of course many other factors beyond the recovery of recovery that contribute to country selection, for example commodity exposure, protection in the event of an increase in inflation or US yields, risks to structural growth and geopolitical risks.
And there are many stocks highly geared to tourist flows in markets that are otherwise driven by non-tourism factors (eg Saudia Catering in Saudi or Despegar in Argentina).
Covid and tourism
Covid in EM: Where's already infected, vaccinated and re-opening, September 2021
Individual tourism-exposed markets
Dubai can lure Hong Kong expats, May 2021
Egypt: Youth unemployment, August 2021
Sri Lanka's food and currency "emergency", September 2021
Georgia's politicians sign a fragile truce, April 2021
Tunisia democracy fails again, July 2021
Jamaica: Repaired and re-rated but now slow growth, October 2019
Jordan's crises, April 2021
Mauritius: India Tax Treaty Changing, May 2016