The increasing likelihood of a political regime change in the US is creeping into the mindset of equity analysts as listed shipowners prepare to report earnings for the second quarter in the coming weeks.
Three separate analysts tell Streetwise that the greater prospects of a second presidential term for Republican Donald Trump will be among the themes they are watching as company management teams host earnings calls and provide outlooks for their respective markets.
Tricky road to November
One of these banks, Jefferies, has even prepared an extensive client note on the subject, with essentially this takeaway: For shipping, it’s complicated.
The whole picture is complicated. For one thing, while less than four months remain until the US election, this can be a lifetime in presidential campaigns.
Challenger and former president Trump has edged above a 70% probability of regaining the seat in the view of prominent oddsmakers.
His opponent will not be incumbent President Joe Biden, who stood aside on Monday amid mounting pressure. With a replacement may come new dynamics and new betting odds.
In any case, US leadership is now at the forefront of analyst vigilance alongside the usual themes of the Russia-Ukraine war, unrest in the Middle East with Houthi terror attacks on shipping, disruption of traffic in the Panama and Suez canals and China’s economic health.
And indeed, who is running things in Washington from January may well influence each of these geopolitical themes.
“In terms of themes, there are a few — Chinese economic health, the high pace of recent ordering activity, but probably the most interesting is potential implications from the US elections,” Stifel analyst Ben Nolan told us.
“I don’t know that we are going to hear much about it on the conference calls, but it is certainly something that everyone is paying attention to.”
Added analyst Poe Fratt of Alliance Global Partners: “Overall themes will include the duration of the disruptions — Russia/Ukraine, Suez Canal and Panama Canal — and the potential impact of a change in the US administration in January 2025.”
Probably the conventional take on a second Trump administration is that it would be substantially more favourable to the oil patch and hostile towards the development of green-energy alternatives such as offshore wind farms.
On the downside, Trump’s rumblings about further tariffs bordering on trade wars with China would seem to suggest jitters for other shipping markets.
The Jefferies report
These are surface takeaways, of course, and as a new client note from Jefferies lead shipping analyst Omar Nokta suggests, the real impacts are likely to be more complex and nuanced.
“We expect shipping stocks to be range-bound in the interim as the equity markets assess the various outcomes on the horizon. A Trump win does not automatically mean certain segments will win and others will lose, as there are too many variables to assess, in our view,” Jefferies said.
Trump and his vice presidential pick, Ohio senator JD Vance, both lean towards isolationist views, for example, which could impact US willingness to keep backing Ukraine’s struggle with Russia.
But supposing that conflict were to end, the impact for shipping would very much depend on how it ends, Jefferies suggests: is there a loss of Ukrainian territory?
If the answer is yes, then the likely outcome is a continuation of the altered trade flows that have so benefited tankers and LNG since 2022 based on sanctions against Russia. If not, there are longer-term prospects for a return to traditional trading patterns and an end to the disruption premiums.
A Trump administration will also likely take a hard line against China and Iran.
Concerning China, “the likelihood of increased protectionist measures suggests global container trade will falter should tariffs become more onerous”, Jefferies concludes.
As for Iran, it is likely based on previous hostility under Trump that Iran’s ability to export crude will be curtailed, Jefferies reasons. But rather than a negative for shipping, this would shift production from the “dark fleet” tankers serving the Iran trade to “free market” tankers — a potential boon to VLCC owners.
There may be a general overhang on shipping equities until some of these complex questions are resolved — this is assuming, of course, that a Trump win is on the cards.
“In this overall context of uncertainty, we prefer to focus on top quality stocks with meaningful free cash flow generation, strong balance sheets and tight supply-side dynamics,” Nokta wrote, highlighting product tanker owners Scorpio Tankers, Hafnia and Torm.
Eyes on VLCCs
Apart from the theme of US regime change, there are analyst eyes on the VLCC sector as earnings unfold.
Senior US shipping analyst Jonathan Chappell said he will keep a close eye on Frontline and the disparity between bullish fourth-quarter rates projections, particularly by Norwegian analysts, and the reality of the low current market.
“It’ll be interesting to see the 3Q-to-date rates Frontline has booked to see if it’s doing exceptionally better than current market levels, and if the bridge to the most bullish 4Q rates is too ambitious,” Chappell said.
Researcher Greg Lewis of BTIG also tabbed Frontline as his top watch: “Color around what is driving the recent collapse in VLCC crude tanker rates and any read-throughs around Asia’s crude oil demand.”
Meanwhile, both Nolan and Deutsche Bank analyst Chris Robertson said they are keeping an ear open to further developments from Golar LNG after its recent announcement of a major contract in Argentina.
“Given the company’s recent announcement around a new contract for the Hilli asset, we will be looking for incremental commentary around contracts and investment decisions around one or more MK II FLNG assets,” Robertson wrote, referring to potential newbuildings.
