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Asian shipping stocks stumble into Year of the Horse

Posted to Far East Maritime (by on February 5, 2014

There was no double happiness between the western New Year and the Chinese one as holders of shipping stocks saw their prices fall.

Investors weren’t too distracted by the holiday spirit in the build up to the Year of the Horse and managed to shake off their hangovers while lunging for the sell button.

Asian shipping stocks took a beating in December and the slide continued after markets reopened on January 2, all the way to Chinese New Year.

Unsurprisingly, leading the sliders were the bulk carriers. The Baltic Dry Index is down 48 percent since 2014 dawned, following the slack season. It is the biggest fall in 30 years, although it has been pointed out that rates are still double what they were at the same time last year.

Nevertheless, China Shipping Development saw its share price tumble 20 percent in January, while Handysize specialist Pacific Basin followed with a 15 percent fall in earnings per share. Analysts believe this is because after a great year investors were looking or a reason to sell and the falling BDI presented one. A good rebound in the build up to the busy summer season will improve earnings and buoy investor confidence.

Another area where investors could use a little “buoying” is that of container shipping, but it is probably too late for that. The parent of Hong Kong-based Orient Overseas Container Line, OOIL, recorded a 14 percent drop in its share price in January.

Like most of the box carriers, OOCL saw its revenue per TEU falling heavily as weak freight rates on the major trades, especially Asia-Europe, eroded profitability. Fortunately, the carrier is one of the quality ones and will rebound as soon as investors realize its valuation has become more attractive.

Other carriers without such a pedigree could find it more difficult to improve valuations. China Cosco’s price on the Hong Kong Exchange was down a surprising 13 percent on its January 2 close. Surprising in that it never plummeted, considering the unit of giant state-owned Cosco Group had to sell off bits of itself to avoid a third consecutive loss and subsequent delisting from the Shanghai Exchange.

Also down on the January 2 price were China Shipping Container Lines (-12 percent) and Singapore listed NOL (-11 percent).

It is not an attractive investment environment all round, although bulk carriers are probably in a better place than the container lines. The great destroyer of value is overcapacity. It pulls down freight rates and affects ship utilization, and with the reluctance of lines to lay up vessels, that glut of capacity will erode profitability across the board.

Carriers operating the large container ships are in a better position than those with the smaller and less efficient vessels, but unless demand ramps up significantly, they are all in for another tough year.