Focus: Logistics and transport
Rocketing fuel prices and slowing global trade are casting a cloud over the outlook for earnings of companies operating in the sector, but there is still value among selected stocks, according to analysts. Investors in shipping firms and airlines should proceed with caution, they advise, and keep a close watch on economic data that may signal changes to the level of demand for their services during the remainder of the year.
They point out that industrial production on the mainland, a key indicator of what may be in the export pipeline and hence what lies in store for shipping volumes and freight rates in the region, is showing signs of slowing.
Calyon's senior economist for Asia, Sebastien Barbe, says the production data confirms that the mainland has entered a 'very soft imported economic slowdown' and there is more to come. 'The bulk of the deceleration comes from softening exports which spreads to slower industrial production,' he says.
Lehman Brothers analysts warn that companies operating in the transport and logistics sector will face the second-round effects of this slowdown - 'narrowing profit margins'. But Sean Darby at Nomura International says value may still be found in the sector, despite these signals.
Securities dealer Francis Lun Sheung-nim, general manager of Hong Kong brokerage Fulbright Securities, says while there is a cloud of uncertainty hanging over global trade and the cost pressure on shippers from rising fuel bills, there are still investment opportunities in the sector. 'Shipping shares have been rising quite strongly lately, chiefly because of a rebound in the Baltic Dry Index,' Mr Lun says.
The Baltic Dry Index captures movements in dry bulk shipping rates and, according to index compiler Baltic Exchange, provides an assessment of the price of moving major raw materials by sea. The index jumped 418 points in mid-May to a near six-month high of 11,067.
