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WHAT TO BUY FOR CHRISTMAS?
Year-end is coming closer and we need to think about the right maritime investment strategy for next year. In retrospect, LPG, liners, and crude tankers were the top performers this year but we doubt that all three sectors will continue as winners throughout next year.
We are still bullish on the LPG business case. We believe that US propane export growth and tonne-mile growth will outpace vessel supply growth for another 12 months. However, there are some clouds gathering at the horizon, namely the relative strength of propane prices against crude or naphtha and the full storages in Asia which need to be observed.
Liner companies benefitted this year from freight rate discipline and lower fuel costs. We have to admit that we did not foresee such a positive year for the sector. However, the whole sector now has reached a high valuation in comparison to other sectors and even in comparison to the S&P 500 which makes us believe that liners may not be the winners in the next year.
The same may apply to the crude carrier stocks, as well. Until autumn 2019 the crude sector performed quite well despite the fact that charter rates did not increase significantly. Without the 'help' from the US administration which banned a part of the fleet, rates might have stayed low until November. Now with IMO 2020 disruptions finally kicking in, we see a huge part of the crude fleet occupied in floating storage. Rates are back above USD/day 100k but tanker company stocks seem to hesitate. We are wondering whether this bullish environment can persist into H2 next year.
The LNG sector looks grim from a fundamental perspective for 2020. However, some of the LNG stocks may have overreacted. There is a viable chance that companies from this sector may positively surprise us next year.
Other sectors like dry bulk or the container owner companies look uninspiringly. All in all, we at Notos are in a wait-and-see-mode and prepare ourselves for a volatile year to come. We think that investors need to be more alert and we may put more weight on short-term trading.
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