One of the axioms of shipping is that war can boost freight rates and share prices, particularly for tankers.
Since Russia invaded Ukraine last week, tanker shares have indeed outperformed, but upside is not evenly spread and gains have eased.
Container and dry bulk stocks have been largely treading water, with multiple names underperforming the S&P 500, particularly on the dry bulk side.
Retail traders fueling tanker stocks
“There are always winners and losers and shipping markets have proven to be direct beneficiaries in a major way of events that are typically not good for the broader market,” said Evercore ISI shipping analyst Jon Chappell.
“It’s not necessarily a long-term investible thesis that if the S&P goes down 20% you want to be max long speculative tanker stocks, but they are a hedge in a lot of these situations,” he told American Shipper. “It has been proven time and time again that when there’s a geopolitical event involving this type of aggression, tanker and defense companies tend to be big winners.”
Recent trading moves “feel retail-driven if you look at the relative performance,” said Chappell. NAT, the perennial darling among retail traders, “was the biggest winner,” he pointed out. “The second biggest winner was TNK, and that’s a sub-$500 million [market cap]. That’s a retail-type stock.”
In contrast, the larger crude tanker names more favored by institutional buyers “have been some of the biggest laggards,” said Chappell.
“I think the key is that these tend to be anomalous events and institutions tend to stay away from anomalous events, but if it proves to be a bridge to a more sustainable cycle, that’s where you’ll get more institutional interest.”
There is at least some additional institutional interest in tankers since the invasion, he said. “But the bar was really low, so any [interest] is more, and yeah, there has been some. But it’s still nothing like it was in the Cosco days [when sanctions on Cosco pushed up tanker rates in September 2019], when it was super-hot. Now, we’re coming from a place where some people were kicking the tires a bit, but nobody was there in a major way.”
From the Feb. 22 close to Wednesday’s close, shares of DHT (NYSE: DHT) and Scorpio Tankers (NYSE: STNG) rose 9%, and shares of Frontline (NYSE: FRO) and International Seaways (NYSE: INSW) gained 8%. Shares of Euronav (NYSE: EURN) — the largest U.S.-listed owner by market cap and one that’s marketed to institutional investors — were up only 1.5%, underperforming the S&P 500 over the same period.
Dry bulk and container stocks
Dry bulk and container stocks rose on Wednesday with the overall stock market and numerous equities posted mid-single-digit gains. These stocks are “plays on the broader economy,” and with the Dow up over 600 points, it’s “not surprising to see them ripping as well,” said Chappell.
However, looking over the past six trading sessions combined, most dry bulk stocks have made little gains or losses. The big exception is Diana Shipping (NYSE: DSX), up 17% since Feb. 22, but for reasons unrelated to geopolitical unrest: It doubled its dividend on Feb. 25. “The surprising dividend increase was a big catalyst,” said Jefferies analyst Randy Giveans.
Among the other dry bulk names, Genco (NYSE: GNK) closed up 5% on Wednesday versus its Feb. 22 close and Star Bulk (NASDAQ: SBLK) was up 2%, while Safe Bulkers (NYSE: SB) was flat, Seanergy (NASDAQ: SHIP) was down 1%, Eagle Bulk (NASDAQ: EGLE) was down 2% and Golden Ocean (NASDAQ: GOGL) was down 6%.
Container stocks have performed better than dry bulk stocks since the Russian invasion began, but not by much.
Among the container-ship lessors, Euroseas (NASDAQ: ESEA) was up 6.5% since Feb. 22; Global Ship Lease (NYSE: GSL) — which reported better than expected quarterly results on Wednesday — was up 5%; Costamare (NYSE: CMRE) — which also owns a large dry bulk fleet — was up 1%; and Danaos (NYSE: DAC) was down 3%.
Among the ocean carriers, Matson (NYSE: MATX) was up 6% and Zim (NYSE: ZIM) 2%. But Copenhagen-listed shares of Maersk, a company with heavy exposure to European container trades, have dropped 5% over the past six trading sessions .
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