For much of 2021, roaring physical freight markets in containerships and dry bulk have helped push US-listed shipping stocks to major gains.
But those buoyant markets were not enough to continue the trend last week, as boxship and bulker listings were among the biggest losers despite another strong week for rates.
On a week when capesize rates soared above $80,000 per day, New York dry bulk stocks dropped 8%.
On a week when the Shanghai Containerized Freight Index (SCFI) hit record highs, containership stocks plummeted 9%.
This helped send the 29 shipping stocks under coverage of investment bank Jefferies to a 5.1% fall on the week, underperforming the 0.8% gain by the S&P 500 and the 0.4% loss by the small-cap Russell 2000 index.
Despite the tumble, the Jefferies Shipping Index remains up 70.8% year to date and 55.9% year over year.
The reason for the disconnect between rates and shares? As often is the case, look to China, said Jefferies lead shipping analyst Randy Giveans.
"Definitely a week for the bears," Giveans told TradeWinds. "Any cracks in China would certainly be felt the most in both containerships and dry bulk, so that was the main reason for the sharp selloff despite rates going higher."
Giveans referenced particularly fears of short-term Chinese factory production outages as damaging boxship stocks despite record highs in key indices.
"Meanwhile, average containership charter rates also climbed higher, increasing for the 70th week in a row since bottoming in June 2020," Giveans said.
There was another factor dampening both dry bulk and containership owners, Giveans said.
"Also, some momentum investors have been exiting before rates peak, which will certainly happen during the fourth quarter before a pullback into first-quarter 2022," he said.
"This happens pretty much every year as newbuildings get delivered and demand slows due to Chinese New Year, as well as the Winter Olympics in Beijing in February in this case. That said, we expect the rate pullback will be less severe and slower than many fear."
Investors had a more tangible reason to sell off tanker stocks — hire rates did falter on the week — and they didn't miss, sending the stocks down an average 7%.
Herbjorn Hansson's Nordic American Tankers, the suezmax pure play, was the overall worst performer on the week with a 12.6% drop.
Gas stocks were mixed, with LNG owners gaining 3% and LPG operators dropping 2%.