This Sector Shines Amid Turmoil... A 'Defensive' Investment Opportunity [Weekend Money]

In the midst of heightened Middle East geopolitical risks and increasing market volatility, analysts have emphasized the need to focus on the shipping sector as a defensive play.

According to Korea Investment & Securities, the resumption of airstrikes between the United States and Iran has led to a renewed blockade of the Strait of Hormuz, causing the average daily vessel passage to drop to under 15 ships—a steep decline from the typical 120 ships, and a level last seen between March and May. Additionally, Houthi rebels have resumed attacks on vessels in the Red Sea. Saudi Arabia, which had been rerouting oil exports through Yanbu port and the Suez Canal, has now suffered disruptions as Houthi rebels targeted Saudi-affiliated oil tankers in the Red Sea.

There is a growing consensus that such disruptions to the global supply chain are improving market conditions for the shipping industry. Choi Goun, a research analyst at Korea Investment & Securities, explained, “Physical bottlenecks, such as port congestion and longer transit routes, have made supply conditions much tighter. At the same time, shippers are increasingly inclined to pay a premium for reliable logistics services, due to heightened uncertainty.”

In the second quarter of this year, the average Baltic Dry Index (BDI) surged by 87% year-on-year, marking its highest level since 2021. Choi noted, “While there was a correction starting in June, the July average remains above the second-quarter level. Pan Ocean is seeing greater-than-expected improvement in operating profits—not just from bulk carriers, but also tankers, liquefied natural gas carriers (LNGC), and container ships.”

The Shanghai Containerized Freight Index (SCFI) has soared to more than twice its prewar level, while the China Containerized Freight Index (CCFI), which more closely tracks actual carrier earnings, rose for 20 consecutive weeks prior to last week’s correction, breaking through the 1,900-point mark. Choi observed, “The current peak differs by only 12% from the highs reached during the Red Sea crisis in 2024. Even considering a likely correction, the average CCFI for the third quarter is expected to stay in the 1,600-point range. In 2024, the annual average CCFI was 1,551 points, during which time HMM posted 3.5 trillion won in annual operating profit and nearly 900 billion won per quarter. Even taking a conservative approach to higher fuel and demurrage costs, third-quarter operating profit could exceed 700 billion won.” He added, “By comparison, the consensus average for third-quarter operating profit stands at only 455.8 billion won. Even though HMM’s annual forecast has been revised up by more than 50% since the outbreak of the war, expectations may still be too low.”

Given the importance of defensive stocks to help offset extreme equity market volatility, the shipping sector is expected to offer meaningful investment opportunities. Choi stated, “HMM’s third-quarter earnings surprise warrants a revaluation, while Pan Ocean is showing even lower volatility thanks to its strengthened earnings base and, conversely, the greatest visibility in shareholder return policy. For 2026, operating profit is projected to rise by over 20% this year, with a dividend yield expected at 4%, and the price-to-book ratio (PBR) is just 0.4 times. Thus, we recommend shipping as a defensive sector.”

This content was produced with the assistance of AI translation services.