Shipping Stocks Surge Amid Middle East Conflict

A plume of smoke rises after an airstrike by the Saudi Arabia-led coalition in Yemen's capital Sanaa, which is controlled by the pro-Iranian Houthi rebels, on Oct. 9 (local time). (Provided by AFP Yonhap News)  As armed conflict between Saudi Arabia and Yemen's pro-Iranian Houthi rebels intensifies, shipping stocks are drawing a steep upward curve in the domestic stock market from early trading on Oct. 14. This is the result of investment sentiment being stimulated by expectations of benefits from rising freight rates, as disruptions to maritime transportation around the Red Sea have become inevitable. As of 9:30 a.m. on this day, HMM is trading at 23,500 won in the KOSPI market, up 6.58% from the previous trading day. STX Green Logis is recording 2,430 won, an increase of 6.81%, while Pan Ocean (4.43%) and Hyundai Glovis (4.49%) are also showing strength in the 4% range. The market's reaction was immediate following news that the Saudi-led international coalition launched a massive airstrike on major Houthi military facilities. Tensions in the Middle East have reached their peak. A fire of unknown cause broke out in a building within the headquarters complex of Saudi state-owned oil company Aramco, and the Houthi rebels are being pointed out as the ones behind it. Currently, the Houthis have seized control of the Bab el-Mandeb Strait, a core detour route for energy transportation, and coupled with Iran's blockade of the Strait of Hormuz, the bottleneck in global supply chains is in an intensifying trend. The securities industry predicted that this situation would lead to earnings improvement for shipping companies. Bae Se-ho, a researcher at iM Securities, raised the target price of Pan Ocean from the previous 8,000 won to 8,500 won through a report. The analysis is that as disruptions occurred in the operation of very large crude carriers (VLCC) due to the conflict between the United States and Iran, an inefficient method of transshipping via the Port of Oman was introduced, and this became a direct cause of the freight rate increase. The container ship sector also has scattered variables of supply disruption. Choi Min-gi, a researcher at Shinhan Securities, pointed out that freight rates rose steeply as Chinese typhoons, port congestion in Western countries, and the bottleneck phenomenon at the Panama Canal overlapped. Accordingly, the investment opinion on HMM was upgraded to 'Buy' and the target price was also adjusted to 26,000 won. Experts view that the speed of shipping companies' return depending on the combat situation between Saudi Arabia and the Houthis will be the core variable for future stock prices. If the Middle East conflict is prolonged, the speed of shipping companies' profit improvement is expected to accelerate further along with an increase in shipping asset values.