In light of the collapse in the market for shipping dry cargo at sea, manager Joakim Hannisdahl has sold off shares. - Looks heavy for the next 6 to 12 months.
Joakim Hannisdahl, who heads the shipping hedge fund Cleaves Shipping Fund, refers to the situation as a short-term headwind. In the medium to long term, he is far more optimistic.
It is a bit of a difficult situation now, says Hannisdahl, who heads the shipping hedge fund Cleaves Shipping Fund. He has had dry cargo shares as a clear favorite since the start of the year, but has changed his view due to the situation in the shipping market. The exposure to dry cargo shares in the fund has now been reduced from 40 per cent last month to 15 per cent at the start of September.
The earnings of dry cargo ships, which transport raw materials such as iron ore and coal, have moved significantly downwards recently. The Baltic Capesize index has fallen 84 percent since May to $6,076 a day, The index measures earnings in the spot market for Capesize ships, the largest type of dry cargo ship. This one is known for swinging a lot. Capesize ships often have a cash break-even of around USD 15,000 per day, that is, the level needed to break even on freight. As a result, the money runs out for several of the shipping companies on freight in the spot market.
Short-term headwinds Hannisdahl explains that the drop in sales is a lot because of the situation in China.
There is a lot of negativity from China now. It is a shipping segment that is very exposed to China, for better or for worse. The hedge fund manager explains that China accounts for approximately 40 percent of the dry cargo market. However, he is not very worried. At least not in the long term. - Now we have short-term headwinds. We are entering a typically seasonally strong period. We are at low levels now so it may go up a bit or be volatile going forward. - But underlyingly, the next six to 12 months look heavy, says Hannisdahl.
Hannisdahl says it "looks difficult for the next six to 12 months", much depending on whether the problems in China are resolved or not.
One deals with the closure of cities. It is quite frustrating that the Chinese authorities maintain a "zero covid policy", while the rest of the world has moved on. The second is the construction industry. They tightened debt financing, and construction projects are thus not financed in the same way as before, and then it stops. Then the question is whether the Chinese will solve the problems or whether it will get even worse. They are stimulating a lot now, so you can imagine that the measures will have positive effects within a few months.
Don't dare be left out
What does it take for you to increase your exposure again, and is it relevant?
It is relevant. But right now it didn't make sense to sit with 40 percent because of the risk picture, answers Hannisdahl. We think second-hand values are falling, the shares have already priced it in, and the long contracts have also fallen sharply. You have to imagine that they will come back up, and it may take some time. Having said that, the shares are quite attractively priced at current levels, the manager continues. He adds that the fund is still left with a small exposure because they "don't dare sit without it". At some point the shares will probably be priced up again, but the question is when that will happen.