HSBC Downgrades Major Container Stocks

HSBC has downgraded key container stocks, predicting slower earnings as disruptions from a short-lived U.S. east coast strike turned out to be less severe than anticipated.

The brokerage observed that shipping had "thrived amid the chaos of 2024," but disruptions in the Red Sea are now unlikely to exert additional pressure, while the U.S. strike no longer poses a threat.

This trend is expected to lead to an oversupply of shipping in 2025-2026, putting increased pressure on earnings for pure-play shipping operators due to lower freight rates.

HSBC's actions include:
– Downgrading Evergreen Corp (NASDAQ:EVGR) to Hold from Buy.
– Downgrading COSCO SHIPPING Holdings (HK:1919) and Orient Overseas International Ltd (HK:0316) to Reduce from Hold.

In contrast, HSBC maintained its Buy rating on Maersk (CSE:MAERSKa), citing improved margins in logistics, and on SITC International Holdings Co Ltd (HK:1308) due to effective cost management and shareholder returns.

HSBC continues its Reduce rating on Hapag Lloyd AG (ETR:HLAG) due to high valuations.

Global shipping rates skyrocketed in 2024 due to disruptions and rerouting in the Red Sea from Houthi activities, leading to global backlogs. A brief U.S. east coast port strike was expected to exacerbate this, but a quick agreement was reached after just three days.

HSBC noted that while future setbacks could present opportunities for the shipping industry, a downcycle in container shipping is likely on the horizon with modest growth in 2025 and a decline in 2026, particularly if tensions in the Red Sea ease.