Strategy Note /

Tourism is cheap and its time may have arrived in emerging market equities

  • Covid vaccination (or high levels of prior infection) is finally allowing tourist travel to open up

  • Iceland's monthly visitor data continues to show how fast and how far the sector might recover

  • The Philippines is the cheapest of several attractively valued tourism-exposed emerging equity markets

Tourism is cheap and its time may have arrived in emerging market equities
Hasnain Malik
Hasnain Malik

Strategy & Head of Equity Research

Tellimer Research
22 September 2021
Published byTellimer Research

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.

EM equities valuation: Tourism is comparatively cheap

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 recovery with Covid vaccination: where is relatively cheaper exposure in exposed emerging equity markets

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.

Tourism recovery precedent from Iceland: recovery since May but much further to get back to pre-Covid levels

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).

Related reading

Covid and tourism

Covid in EM: Where's already infected, vaccinated and re-opening, September 2021

Tourism's recovery potential is shown by Iceland, June 2021

Individual tourism-exposed markets

Philippines: Pacquiao enters the ring but vaccines and tourism is the real story, September 2021

Dubai can lure Hong Kong expats, May 2021

Thailand youth-led protests add to old schism and sclerosis, October 2020

Vietnam: The best emerging market is still spoilt by foreign ownership limits, June 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

Morocco votes but impotence of moderate Islamists may embolden radicals, September 2021

Jamaica: Repaired and re-rated but now slow growth, October 2019

Iceland: Fully valued, slowing growth, FM anomaly, July 2019

A new civil war in Lebanon: time to consider the consequences, April 2021

Jordan's crises, April 2021

Mauritius: India Tax Treaty Changing, May 2016