Shipping equities resilient in face of record-low China output

Shares in Tokyo, Hong Kong and Singapore avoid major sell-off despite lowest PMI figures in 15 years

Asian shipping equities remained resilient Monday despite Chinese factory output cratering last month as the country dealt with the impact of the coronavirus outbreak.

The manufacturing purchasing managers’ index (PMI) plunged to 35.7 in February from 50 the previous month, released by China’s National Bureau of Statistics on Saturday.

“This is the lowest reading since January 2005 when it was first released. The second lowest was 38.8 in November 2008, during the global financial crisis,” said Nomura in a note Monday.

“The non-manufacturing PMI plummeted even more significantly, to 29.6 in February from 54.1 in January, with the reading quite close to our forecast of 33.0 but much weaker than the market consensus of 50.5.

“The plunge in both manufacturing and non-manufacturing PMIs was due to effects from the Covid-19 outbreak and slow business resumptions since the Lunar New Year holiday.”

Analysts told TradeWinds that the 50-point level in China’s PMI readings separates growth from contraction.

In Japan, shares in the three major shipping lines – Mitsui OSK Lines (MOL), NYK and K Line – were up marginally after an initial sell-off at the opening.

In Hong Kong most shipping stocks were in positive territory with the likes of OOIL, Pacifc Basin and several Cosco stocks all showing gains.

Shipping equity markets have seen a global sell-off in recent days as investor concerns rose over the rapid spread of the coronavirus outside of China.

Last week Evercore analyst Jon Chappell said in a note to investors: “There is no sugar-coating just how bad the sentiment on shipping stocks is at the present, and quite frankly there is no defending the prevailing mood."

The worse-than-expected figures are fueling concern over the scale of the disruption to the Chinese economy caused by the virus and how long it will take for manufacturing activity to return to normal.

According to official releases, work resumption rate among Chinese enterprises stood at 78.9% as at 25 February 2020, of which work resumption rate among the manufacturing sector was higher at 85.6%.

“As such, the relative strength seen in manufacturing PMI over that of non-manufacturing PMI could be attributed to higher work resumption rate, which depends on mobility restrictions placed on workers,” said analysts at UOB Kay Hian.

“As the government continues to relax travel restrictions, work resumption should pick up and we expect PMI to rebound to above 50% in March 2020.

“This, however, hinges on the assumption that new infections do not spike in mid-March 2020 as a result of resumption of social activities.”

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