The shipping industry has been sailing through troubled seas as the global recession takes a toll on trade, but Asian shipping stocks have rebounded in 2009 as investors bet on a recovery. China Cosco, which operates the world's biggest dry bulk fleet, hit an eight-month intra-day high on Wednesday on the strength of dry bulk shipping rates, and is up about 65 per cent this year.
The Baltic Exchange's main sea freight index, which tracks rates to ship resources including iron ore, coal, cement, grain and fertiliser, rose 14 straight days to 2,665 points yesterday, a fresh year-high and four times its December low. Containership operators that are now losing money on overcapacity and weak demand have rallied even stronger, with China Shipping Container Lines and OOIL up 85 and 77 per cent respectively this year.
Is the worst over?
Goldman Sachs upgraded its containership stance to attractive from neutral, saying that the sector is trading at a deep discount. It raised Taiwan's Evergreen Marine and Wan Hai Lines and South Korea's Hanjin Shipping to buy from neutral and reiterated its buy for China Shipping Container Lines.
'Japan and Korea shipping stocks have also underperformed China's shipping sector even though the industry drivers are global,' it said. Goldman also upgraded Mitsui OSK Lines to buy from neutral.
The container shipping company sector currently is trading at an average of 0.7 times to 2009 book value against a historical range of between 0.3 to three times. The mid-cycle valuation is around 1.2 times for shipping firms but it should trade at a discount in the current market, analysts said.
Geoffrey Cheng at Daiwa Institute of Research recommended speculative buying of bulk shipping stocks, such as China Cosco and Sinotrans Shipping on China's demand for commodities. Dry bulk freight rates should rise further at least in the short term with China's four trillion yuan (S$855 billion) stimulus package, which will lead to increased infrastructure spending.