HMM shares rebound on foreign buying as shipping rates recover

HMM Co. logo [Courtesy of HMM]

Shares of HMM Co., South Korea’s biggest shipping company, rose on expectations of improved earnings on a rebound in container shipping rates and the recent move to sell the company by its biggest shareholders.

According to the Korea Exchange, shares of HMM close 1.17 percent higher at 21,600 won ($16.38) on Tuesday. Until mid-February, the company’s shares were headed downward as shipping demand fell due to the global economic downturn, but shares reversed course as shipping rates rebounded from the end of last month.

This month, HMM shares have gained 6.14 percent, led by foreigners’ buying spree. Foreigners net purchased a total of 56.9 billion won in HMM shares for seven consecutive trading days from April 10 to 18. During the same period, shares climbed by 9.59 percent.

The recent gains in HMM’s shares is seen due to signs of recovery in the shipping industry. According to the Shanghai Shipping Exchange, the Shanghai Containerized Freight Index, which is used as a measure of profitability for container carriers, surged 8 percent to 1033.65 last week from a week ago. It is the first time in 10 weeks that the index has crossed the psychologically important 1,000 mark since 1006.89 in the first week of February. The industry usually sees 1,000 as a break-even point.

Until mid-March, there were concerns that the shipping index would fall below 900. However, it started to rebound at the end of March and continued to rise for three weeks in a row. In particular, container freight rates to the U.S. west and east coasts soared 29 percent and 20 percent, respectively. Analysts attributed the rise to shipping companies temporarily canceling container ships bound for South America and the lack of progress in labor union negotiations at U.S. west coast ports.

Progress in the sale of HMM also seems to be boosting HMM shares as it is expected to resolve the market overhang problem. Market overhang refers to a buildup of selling pressure for a stock among traders who have mostly held back due to fear of a decline in the stock’s value.