Maersk Invests in Emerging Markets as Bondholders FleeMikael Holter and Christian Wienberg
As bond investors dump emerging market assets, the world’s biggest freight company is underscoring its commitment to the region.
A.P. Moeller-Maersk A/S says it won’t cut its investment in developing markets from Asia to South America even as creditors turn their backs.
“It’s a very important element of our company to identify, years in advance, which countries and regions will have the most growth,” Erik Eisenberg, a vice president at APM Terminals, a Maersk unit and the world’s third-largest port operator, said in a phone interview. “We still see Russia, sub-Saharan Africa, Latin America, Southeast Asia as the best opportunities for growth. This is where we’ll focus our investments.”
The comments from Maersk, whose chief executive officer, Nils Smedegaard Andersen, said last month the “underlying story” for emerging markets remains “very good,” show business investors aren’t swayed by sudden shifts in securities markets. Bondholders have pulled $22.1 billion from emerging-market funds since the end of April, almost five times what they sold in U.S. corporate credit, according to EPFR Global.
Though the shipping industry is experiencing a “short-term impact on global trade, in the long term, it shouldn’t change the focus,” Rahul Kapoor, a Singapore-based analyst at Drewry Maritime Equity Research, said by phone. “Emerging markets will be the major driver for shipping, helped by demographics of growing populations, which support strong long-term demand.”
Securities investors have exited emerging markets following signals from the Federal Reserve it will scale back the stimulus that’s underpinned demand for higher-yielding assets. The MSCI Emerging Market Index has lost 8.5 percent since its Jan. 3 peak, though it’s up 12 percent from this year’s June 24 low.
China’s gross domestic product growth slowed for two straight quarters, down to 7.5 percent in the April-June period. An annual rate of 7.5 percent would be the weakest pace in 23 years after averaging more than 10 percent a year in the previous decade.
Several key indicators have signaled that growth in the largest emerging-market economy may be set to accelerate again. Exports climbed 7.2 percent last month, compared with the 5.5 percent median estimate in a Bloomberg survey.
The Hague-based APM Terminals is committing to its $1 billion-a-year investment bet on emerging markets, Eisenberg said. “That strategy has not changed overnight,” he said. Among the investments: the Sept. 2 purchase of Russian seaport operator NCC Group Ltd. via APM Terminal’s Global Ports Investments Plc, and projects in Mexico, Brazil and China.
Maersk Line, which transports about 15 percent of the world’s seaborne trade, needs emerging-markets growth to boost trade flows as it battles vessel overcapacity in the container shipping industry. Average container rates fell 13.1 percent in the second quarter, Maersk reported Aug. 16.
The Copenhagen-based company isn’t the only shipping industry voice to question the rout in emerging markets.
“Despite potentially curbed growth, so-called emerging markets will keep growing,” Sturla Henriksen, director general of the Norwegian Shipowners’ Association, said in an e-mailed response to questions. The group represents more than 160 companies employing more than 55,000 seamen and offshore workers globally.
Shipping companies transporting raw materials destined for infrastructure projects in developing economies are poised to do best, said Bjoern Kristian Roed, an analyst at Danske Bank Markets, a unit of Danske Bank A/S.
As much as $150 billion of Chinese investments in railways, trains, infrastructure and cities next year should help operators of dry bulk ships, which carry iron ore and coal, Roed said by phone.
“Demand for the second half of 2013 and 2014 is looking good, based on the projects started in China, which are pretty steel-intensive,” he said. Still, overcapacity in ship supply will reduce profit potential, he said.
Drewry says the shipping industry has little reason to retreat from emerging markets as economies in Asia start to become a source of demand as well as supply for seaborne trade.
“The overall trend is for a strong focus on emerging markets, and this is unlikely to change soon,” Drewry said in an Aug. 19 report on global container terminal operators.
Even if Chinese output grows at a slower pace, the world’s second-largest economy will continue to have the biggest impact on the global shipping industry, according to Peter Sand, an analyst at BIMCO, the world’s largest international shipping association.
“When an economy the size of China’s is growing 7 to 8 percent, we’re still talking enormous volumes,” Sand said by phone. “So we may see some month-on-month declines, but compared with a year ago, the numbers are still impressive.”
Right now, dry bulk shipping companies are the biggest winners, according to Sand, whose Bagsvaerd, Denmark-based organization accounts for 65 percent of world tonnage.
“China’s urbanization push is booming ahead regardless and the country needs steel for houses, it needs to build up the infrastructure and produce asphalt as the society is transformed into a modern nation,” he said.
D/S Norden A/S, Europe’s biggest listed operator of dry-bulk ships, is watching markets in Asia closely, CEO Carsten Mortensen said in August.
“Along with anyone else, we’re also a little bit worried about the developments in China,” Mortensen told investors and analysts. “But I think what has happened during the first half and this summer is that even though you see a slowdown of GDP numbers out of China, the fundamental dry bulk demand story continues to play out on the same growth levels we’ve seen consistently for quite a number of years now.”