Stock price dives among our Logistics coverage reflect market concerns over recession risk and the freight rate downtrend. But we expect supply-chain issues to remain salient, supporting freight rates into 2023. Most logistics plays will also profit from a weak baht. RCL is our top pick in Logistics space, due to its cheap valuation and high dividend yield.
Recession isn’t so scary (and isn’t yet a foregone conclusion)
Fears of recession prompted the market to sell down risky stocks, including logistics plays. But leading US inflation indicators are now softening and supply-chain bottlenecks are easing (and if inflation or supply-chain bottlenecks were to ramp back up, the US might lift tariffs on imports from China in order to take some air out of prices, which would boost Sino-US trade and shipping). The Jan-Apr average US retail trade inventory/sales ratio was 1.17x—up slightly from the 2021 average of 1.13x, but still far below the pre-COVID era level of 1.40-1.50x—so we expect further restocking demand with the easing of Chinese lockdowns. China’s manufacturing PMI for June rose to 50.2 (MoM growth for the first time since Feb), so related logistics activity should recover.