Watch global logistics shares for global supply chain signals on coronavirus
Head of Equity Strategy
Summary: Logistics stocks have underperformed the global equity market since 17 January 2020 but overall the declines have not been severe enough to be called an all-out warning. Drilling deeper we observe the most stress among logistics stocks in China and Asia-Pacific (ex. China) and among industries we observe the worst declines in the marine shipping and transit services industries.
The coronavirus in China has still not peaked and mixed reports are coming out of China in relation to when production can be resumed in some regions of the country. Equities in general have been calm on the coronavirus outbreak with the real impact showing up in commodities such as crude oil which tells a tale of the world’s factory grinding to a halt. Within equities the epicenter is in the logistics industry group which was down 5% last Monday compared to the official start date of the coronavirus’ impact on financial markets. However, news flow was on balance positive last week pulling back equities as investors were betting on the coronavirus being contained fast enough to leave little impact on the economy. We take a more cautious view and believe the coronavirus could get much worse globally. As of this morning the Bloomberg World Transportation Index is down 3% from the close on 17 January 2020 which means that investors have not really discounted any meaningful disruption yet from the outbreak.
Underneath the index value the data tells more stories about where the impact really is. Across regions it’s clear that Asia-Pacific and China (a few of the larger names are pulling the weighted return into positive) are the two regions that are suffering the most which is not a surprise.
When we look at industries we observe that marine shipping and transit services (basically passenger transport by rail) are hit the hardest. So the global supply chain has seen a materially decline in activity also supported by the 83% drop in the Baltic Dry Index since August 2019. While shipping and transit services are flashing some signs of warning here the declines are not catastrophic but we recommend investors to watch these industries for guidance. The overall market cap weighted equity indices are broadly reflecting technology companies which are not living in the same physical world as manufacturing companies.
It’s worth noting that the transportation sector has not been an attractive investment over a five year period delivering less than 9% return while the global equity market has delivered 34%. In our technology-driven society our equity markets are no longer reflecting the underlying manufacturing economy but more a services and software economy.
Quarterly Outlook Q2 2022
Quarterly Outlook Q2 2022: The End Game has arrived
- Shocks from covid and the war in Ukraine have forced the global financial and political world to change, but what will the end game be?
Productivity and innovation have never been more importantAs the world economy hits physical limits and central banks tighten their belts, could equities be facing a 10-15% downside?
The great EUR recovery and the difficulty of trading itIf the terrible fog of war hopefully lifts soon, the conditions are promising for the euro to reprice significantly higher.
Tight commodity markets – turbocharged by war and sanctionsWith supply already tight, commodities keep powering on. But will it last for yet another quarter?
Between a rock and a hard placeGeopolitical concerns will add upward price pressures and fears of slower growth, while volatility will remain elevated.
The Great ErosionInflation is everywhere and central banks try to combat it. But will they get it under control in time?
Australian investing: Six considerations amid triple Rs: rising rates, record inflation and likely recessionWhile global financial markets are struggling in an uncertain world, the commodity-heavy Australian ASX index is poised to keep a positive momentum.
Cybersecurity – the rush to catch up with realityWith the invasion of Ukraine, governments and private companies are rushing to reinforce their cyber defenses.