Shipping Giant Maersk: Emerging-market Warnings Misplaced

Sunday, 18 Aug 2013 07:24 PM

 

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A.P. Moeller-Maersk A/S, owner of the world’s biggest shipping line, said concern that emerging markets are losing their growth momentum is overdone.

“The underlying story is very good,” Maersk Chief Executive Officer Nils Smedegaard Andersen said in an interview on Friday. “Our expectation remains that the U.S. will be the key driver of growth, but we’re also relatively optimistic on emerging markets. There is growth potential, even if we have a temporary set-back in commodity prices.”

Investors dumped emerging market assets last quarter amid signals from the U.S. Federal Reserve it might scale back the stimulus that’s underpinned demand for higher-yielding securities. The MSCI Emerging Market Index lost 9.1 percent in the three months through June, while the JPMorgan Emerging Markets Bonds Index dropped 5.6 percent.

The selloff also followed a collapse in China’s export gains in May. In July, China’s Finance Minister Lou Jiwei said the government might be able to tolerate economic growth as slow as 6.5 percent, compared with an official target of 7.5 percent. The remarks were subsequently retracted on state radio.

Since then, several key indicators have signaled that growth in the largest emerging-market economy may be set to accelerate again. Industrial output in China beat analyst estimates in July while export and import figures were also stronger than forecast.

Middle Classes

Andersen said a key driver behind emerging market growth remains its rising household wealth, underpinning demand for imports transported in his ships.

“A lot of people there are entering the middle class,” he said. Gains in household wealth are also evident in the U.S., where a housing recovery is buoying consumer demand, Andersen said.

“We still believe that the U.S. will be a positive story for the coming years, in the short-term supported by more consumption following real estate prices going up and deleveraging taking place,” he said.

Maersk raised its earnings forecast last week for its container-shipping unit, Maersk Line, after second-quarter profit almost doubled. The company said lower fuel prices and costs offset a drop in freight rates.

Supply Glut

Maersk Line has trimmed its fleet and slowed vessel speeds to curb capacity after a supply glut drove down freight prices. The Shanghai Containerized Freight Index -- a measure of prices for cargo leaving the world’s busiest port - - was 22 percent lower at $1,133.14 at the end of June compared with a year earlier. Asia-to-Europe trade is Maersk’s most important route.

Maersk Line cut its forecast last week for growth in global demand for seaborne containers to as much as 3 percent from as much as 4 percent previously.

Europe remains a concern, Andersen said. Though there are signs the “situation is stabilizing, we should also be careful in forecasting any significant growth for the euro zone, given that there are still deleveraging issues,” Andersen said.

© Copyright 2014 Bloomberg News. All rights reserved.

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