SGX, investors should get ready now for next upturn in shipping cycle

Some market watchers were surprised when South Korea's dry bulk play Polaris Shipping indicated in September it is looking to pursue a public listing on the Singapore Exchange (SGX). One trade journal deemed Singapore as "an unconventional choice", considering Polaris Shipping may enjoy greater liquidity if it floats on its home exchange.

Yet, while shipping stocks aren't actively traded in Singapore, they aren't hot elsewhere either. Stock valuations in the broader maritime sector have generally languished amid a protracted sector-wide downturn, afflicting both the conventional shipping and offshore and marine (O&M) segments.

In Singapore, the market capitalisations of shipping and offshore counters are mostly well below S$1 billion. SGX data shows that the combined market cap of a dozen listed shipping counters worked out to just US$3.9 billion and that of 35 offshore services counters stood at only US$2.4 billion as at Oct 5.

The soft shipping equity market certainly does not help the initial public offering (IPO) cause, with Polaris and several similar players having had to postpone going public for months.

On a positive note, Polaris Shipping's move to revisit its equity-raising exercise could well signify an upturn in the market, at least, in the dry bulk sub-sector.

Noting significant increases in dry bulk freight rates this year, panelists at the Marine Money conference in Singapore last month were cautiously optimistic that improvements seen in this segment will continue through to the fourth quarter.

Punit Oza, the general manager of Klaveness Asia, said that the recovery in dry bulk market is backed by a rebalancing in the supply-demand situation, with newbuilding investment dwindling to a low against firm commodity demand in Asia despite the US-China Trade War. Mr Oza suggested that Singapore stands to emerge as an early mover if it manages to interest some two dozens-odd Supramax dry bulk players based out of Singapore to consider a public listing.

That said, Singapore needs to work on enhancing its appeal as an IPO destination; there is no denying that New York and Oslo - boasting more high-profile shipping counters on their exchanges - are the preferred choices for public listings.

There is much scope to matchmake potential investors with investment targets in Singapore as several large funds with "wide mandates" have already set up shop here, one observer said.

Investor education

One area area of focus is investor education and engagement. In this respect, the Singapore Shipping Association's (SSA's) initiative in bringing back the second edition of the Maritime Capital Forum in November is certainly a step towards the right direction. Lee Keng Mun, who heads up SSA's finance workgroup, said the event will bring together institutional investors and shipping corporates that are looking to raise funds.

Retail investors should not be left out either. More educational efforts should be made to increase their knowledge and understanding of the maritime sector because increased participation of retail investors in the market can help bolster the liquidity of small-cap shipping stocks.

Seasoned investor Mano Sabnani pointed out that while the retail community has gained financial literacy over the years, most investors still lack acumen when it comes to execution. For example, they should be taught how to look for signposts to determine when to enter and exit investments in the cyclical shipping markets.

One signpost is market liquidity: shipping stocks are more liquid when the sector is emerging from a downturn and illiquid when the market is about to peak, he explained.

By some accounts, most shipping sub-sectors have seen the worst of the downturn; investors who are derring-do and able to spot the winners stand to reap the biggest gains once the recovery is fully underway.

Tan Hwee Hwee

11 October 2018