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

In the midst of growing Middle Eastern geopolitical risks and heightened stock market volatility, analysts suggest that the shipping industry, considered a defensive sector, deserves close attention.

According to Korea Investment & Securities, the resumption of airstrikes between the United States and Iran has led to another blockade of the Strait of Hormuz. As a result, the average daily vessel passage, which used to be 120 vessels, has dropped to fewer than 15—a level last seen between March and May. In addition, Houthi rebels have resumed attacks on ships in the Red Sea. Saudi Arabia had been exporting crude oil via the Suez Canal through Yanbu Port as an alternative route, but recent attacks by the Houthis on Saudi-linked oil tankers in the Red Sea have caused further disruption.

The prevailing view is that the more chaos occurs in global supply chains, the more favorable the shipping market becomes. Choi Ko-eun, a research analyst at Korea Investment & Securities, explained, “Physically, congestion at ports and longer shipping distances have heightened supply bottlenecks, tightening supply and demand. Meanwhile, from a psychological perspective, shippers are willing to pay higher costs for stable logistics services.”

In the second quarter of this year, the average Baltic Dry Index (BDI) surged 87% year-on-year, reaching its highest level since 2021. Analyst Choi noted, "Although some adjustment began in June, the July average is still higher than the second quarter." She added, "Pan Ocean is seeing better-than-expected operating profits not only in bulk shipping, but also across tanker, LNG carrier, and container divisions."

The Shanghai Containerized Freight Index (SCFI) has soared more than twofold since the outbreak of war, while the China Containerized Freight Index (CCFI)—which more closely tracks actual profits of shipping companies—rose for 20 consecutive weeks, surpassing 1,900 points before a brief correction last week. Analyst Choi stated, "The current difference compared to the peak during the 2024 Red Sea crisis is only about 12%. Even factoring in a potential correction, the average CCFI for the third quarter is expected to remain in the 1,600-point range." She added, "The annual average CCFI in 2024 was 1,551 points, during which HMM earned a yearly operating profit of 3.5 trillion won, or nearly 900 billion won per quarter. Even after conservatively accounting for increased fuel and demurrage-related costs this year, third-quarter operating profit is likely to exceed 700 billion won." She went on to say, "By contrast, the market consensus for third-quarter operating profit stands at only 455.8 billion won. Even though HMM’s full-year operating profit consensus for this year has been revised upward by more than 50% since the war, it still appears to be insufficient."

With defensive stock investments gaining importance as a way to mitigate extreme market volatility, the shipping sector is expected to present an investment opportunity. Analyst Choi said, “HMM deserves to be re-rated based on its third-quarter earnings surprise, while Pan Ocean, thanks to improved earning power, will likely experience lower volatility and, conversely, the highest visibility among shareholder return policies.” She continued, “This year, operating profit is expected to increase by more than 20%, with a dividend yield projected at 4%. With the 2026 price-to-book ratio (PBR) forecast at only 0.4x, I recommend it as a defensive stock.”

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