Chinese Shipping Companies Dive Amid Rising Recession Fears
Chinese shipping companies’ shares dropped in Hong Kong on Thursday, following the U.S. Federal Reserve’s overnight warning of a potential economic contraction, which could weigh on U.S. demand for imported goods and consequently global shipping activity.
Pacific Basin Shipping Ltd. plunged as much as 10% by the mid-day trading break, while COSCO SHIPPING Holdings Co. and Orient Overseas (International) Ltd. each were down 4.7% and 7.2%, respectively.
The sector’s downturn came after several U.S. central bank officials on Wednesday conceded that the country’s need to contain inflation and raise interest rates may lead to a recession. During a congressional hearing, Federal Reserve Chairman Jerome Powell said the central bank’s battle against inflation, which is running at a 40-year high, could lead it to raise interest rates high enough to cause an economic downturn. The Federal Reserve Bank of Philadelphia President Patrick Harker also said on Wednesday that it was possible the U.S. economy might see a modest contraction, even though he expects the job market to remain strong.
Thursday’s slide added to a host of concerns for China’s shipping sector in a difficult June. It brought Pacific Basin’s month-to-date loss to over 26% while COSCO SHIPPING and Orient Overseas are down 23% and 12%, respectively, so far this month.
“Shipping indexes continued to remain under pressure, and investors are concerned that Ocean Shipping Reform Act signed last week will add new pressure on the shipping rates,” Daiwa analyst Kevin Lau said in a Thursday note, referring to a new U.S. law that will toughen oversight of international shipping companies and limit their ability to levy some special fees as the government seeks to control inflation. But the Daiwa analyst added he believes the new regulations are likely to “only have limited impact on shipping rates” and shippers should be able to pass through any additional costs to their clients.
Worsening expectations about global consumption and economic momentum have further weighed on the sector. “We see rising downside risks to our demand, rates and earnings forecasts [for maritime shipping companies] given that globally rising inflation could potentially bite Western consumption power,” Citi analysts said in a note.
Source: Dow Jones