A massive stock market correction, inflationary worries, the Federal Reserve bank raising interest rates, Russia’s invasion of Ukraine and rising oil prices — all scary headlines have done little to dampen the fortunes of US-listed shipping stocks.
The sector’s shares are outperforming against virtually all metrics measuring the broader market over the last five months, according to data sourced by Streetwise from investment bank Jefferies.
Take the larger market as measured by the S&P 500 index. It reached a peak of 4,796 on 3 January and has plummeted 13% since, a decline that started well before Russian President Vladimir Putin firmed up his war plans.
The drop was largely driven by rising inflation and fears that the US Federal Reserve bank would embark on a series of interest-rate hikes to rein in the economy.
But where other names faltered, shipping equities moved up. The average gain of the 29 New York-listed names under Jefferies’ coverage has been 19.49%, with dry bulk owners increasing the most at 30.6%.
Every single operating sector over that time has appreciated, with tankers coming second at 22%.
The Russell 2000, the small-cap index perhaps most comparable for shipping purposes, has declined 13.5% over the same period.
The stocks making up the Russell index actually reached their recent peak on 8 November and has fallen 19.6% since that date, with the S&P 500 down 11.3% from the same date.
But again, shipping names are up 17.7% over the period, with dry bulk listings rising 44.6% and container ships jumping 20%. All other shipping sectors have appreciated as well.
Finally, a much more recent measure comes since 24 February, the day Russian troops entered Ukraine. Since then, the S&P 500 once again has sold off, by 1.5%, with the Russell edging up 1%.
Shipping stocks are up 10.74% since the war started, with the LPG sector this time edging dry bulk in gains, 15.2% to 13.4%. Again, all sectors are up, with tankers climbing 11.4%, LNG carriers rising 9% and container ship shares growing 3.7%.
A permanent chill?
Taking the last development first, Jefferies lead shipping analyst Randy Giveans said investors are recognising that shipping can benefit not just for the moment but longer term from European nations turning around Russia as an energy supplier.
“That may be permanent. Western Europe is now going to accelerate their independence in commodity sourcing. They’re willing to pay more for a more stable source. The question is whether it’s perpetual,” Giveans said.
“Even if Russia were to say tomorrow, ‘Hey, sorry about that,’ Europe is still going to dislocate from them and that’s big for shipping.”
But the US stock market was losing steam well before Russia’s invasion. Stocks began to sell off in early January – even before that for many small caps – based on persistent inflation in the US and a recognition that the Fed would be forced to respond by raising interest rates.
Streetwise looked at the issue and its implication for shipping stocks in the 13 January edition, when one of Giveans’ colleagues, Jonathan Chappell of Evercore ISI, expressed worry that a small-cap selloff by investors might indiscriminately tank shipping stocks as collateral damage.
Chasing hard assets
But Jefferies’ latest numbers show that hasn’t happened, at least not yet.
“There’s been a big dislocation from anything growth-oriented, such as tech stocks trading at heavy multiples. In an inflationary climate, you want hard assets, and shipping is all about that,” Giveans said.
While that could bode well for public shipowners through 2022, it’s much tougher to predict outcomes around Ukraine.
Giveans sees a treaty or truce in which energy prices steady and Europe continues to turn away from Russia as the optimal outcome for shipping.
“The negative would be if the war were really to escalate, Europe were to go into recession and commodity prices were to go completely berserk. Strong commodity prices are good for shipping. Ridiculously high commodity prices are not,” Giveans said.
More ship finance news
- Shipping doesn’t get as much credit as it deserves for progress in satisfying environmental, social and governance issues, experts said on a TradeWinds webinar. Click here to read the story.
- Greece’s Seanergy Maritime Holdings has shed all its junior debt in a deal with a Japanese sale and leaseback financier. Click here to read the story.
- Swiss trading and chartering giant Trafigura has clinched an over-subscribed refinancing to boost liquidity in volatile markets, closing new European multi-currency syndicated revolving credit facilities worth $5.295bn. Click here to read the story.
