KUALA LUMPUR: RHB Investment Bank Bhd has upgraded the transportation sector to "overweight” from "neutral” based on the positive macroeconomic and sectorial indicators.
In a research note today, RHB said trade momentum is expected to strengthen beyond the fourth quarter of this year (4Q 2023), supported by the resilience of US and regional economies, global technology cycle rebound, and early signs of recovery in China.
"Downside risks to our sector call are slower-than-expected recoveries of trade activities and the tourism industry,” it said.
RHB highlighted the stronger-than-expected October data and an overall improvement in trade momentum in recent months, which affirmed the early indications of a trade recovery.
"Significant increases in outbound shipments, especially to major destinations like China, have been observed. We maintain the expectation of a smaller contraction in export data by 4Q 2023, expressing the potential for export data to turn positive in 1Q 2024.
"Moreover, China's economic growth is exhibiting early signs of recovery, evident in improvements in retail spending and industrial activities. The anticipated higher demand from China is expected to contribute to the ongoing export recovery in 1Q 2024 and beyond,” it added.
On the freight rates, due to overcapacity and subdued demand, ocean freight rates persist at a depressed level.
Notably, specific routes experienced a decline in freight rates to below pre-pandemic levels, however for air freight rates, air cargo capacity continued its ascent in 3Q 2023, propelled by the recovery of passenger air services, particularly the belly capacity.
In November 2023, air freight average rates rose 7.9 per cent month-on-month, likely attributed to seasonal demand on specific trade lanes.
This increase is coupled with a slight capacity reduction as some airlines scale back passenger flights during winter. - Bernama