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Trawling the globe for bargains

Too much is too expensive
November 9, 2017

We’ve been told, or seen first-hand, that wages have not kept up with inflation and that many are only just about managing. In fact, all too many are living from pay cheque to pay cheque, with no savings and uninspiring prospects. This week the Mayor of London, Sadiq Khan, announced that the London living wage will rise to £10.20 from £9.75 per hour. Renting an average room in the capital costs about £200 per week; an awful lot of hours must be worked. 

Tuesday’s survey by Dutch bank ING showed that 48 per cent of people living in 13 European countries who currently do not own their own home reckon they never will. This is despite 65 per cent believing that home ownership was a sign of success and that they would be happier than if renting. We know UK house prices are very expensive. Fiddle the figures any way you like and you will see that company share prices are also expensive. Because interest rates are at rock bottom, bond prices on everything but the patently bankrupt are expensive, too. Many commodities are close to record highs, contemporary art prices have been stratospheric for a long time, agricultural land is snapped up by the very rich for inheritance planning purposes. The list just goes on and on. 

Scouring the investment universe for anything that looks cheap is hard work, but the shipping sector stands out like a sore thumb. Obviously, we know about overcapacity and the hit banks have taken from lending in this area. We also remember the torrid time freight rates, as well as the commodities they carry, had in the boom time leading up to 2009, precious metals only peaking in 2011. Now, just because something’s inexpensive does not necessarily mean it’s a good investment – it might be a lame duck.

The Baltic Dry index, which covers a broad spectrum of ship sizes, eventually based early in 2016 and has been pushing slowly higher since then. It’s up fivefold with long-term moving averages bullish. The wave structure is positive, with corrections alternating with the longer-term bull trend. A rally to the $2,000-$2,300 area is a distinct possibility, but it’s worth remembering that this level has capped the market for much of the past 30 years.

The Baltic Dirty Tanker index, for which we have less historical data, has been stuck between $500 and $1,000 since 2009. This is very much the lower end of the longer-term spectrum, so there is room for it to appreciate, especially if North American exports come on stream.

Another way to get involved in shipping would be to consider buying shares in AP Moller-Maersk (Den:MAERSK-B), the Copenhagen-based giant. Rather a rocky ride in terms of price appreciation, but moving more steadily since 2010. Certainly worth a closer look were the market to dip again.

The more adventurous might be interested in Hong Kong-listed, Beijing-headquartered China Ocean Shipping (Group) Company (HK:COSCO) whose focus is shipping and logistics. With 365 dry bulk vessels, it’s mainland China’s biggest carrier.  Like shares in Shanghai and Shenzhen, COSCO saw a massive speculative rollercoaster in 2007 and 2008. Since late 2011 it’s been capped at the HK$5 level. Watch for signs of life here.