Drybulk shipping stocks and a related exchange traded fund (ETF) soared today. After the sector has struggled with a global economic crisis, what’s going on?
Much of the leap was based on news of a possible Chinese stimulus package, says the Associated Press. Investors hope such a package would prop up manufacturing and infrastructure spending.
Transports of iron ore and steel to and from Australia and China are the major uses for Capesize vessels (so named because they are too big to get through canals and must instead go through the Cape of Good Hope or Cape Horn to get between oceans).
Rates for Panamax vessels (which can fit through the Panama canal) have jumped 30% this week.
Chip Hanlon, president of Delta Global Advisors and the creator of the underlying index for the Claymore/Delta Global Shipping (SEA) said on Green Faucet that today’s activity looks a lot like the relation trade is back on. If the stimulus plans work, they could have a positive inflationary impact in the future. But is it the start of a trend? Hanlon has his doubts.
It was a big day overall for the industry, and some components of the fund were up 20% or more. This had mainly to do with the rising cost of oil today, which soared 9% to $45.38 a barrel. The majority of what shippers are transporting are manufacturing commodities, so when these items (copper, base metals) start going up, shipping tends to follow.
This is why shipping could actually show signs of recovery before the broader economy. Prior to China shipping goods, they’ll need materials to make them. Is today the start of a turnaround? It’s far too early to tell, but it’s an encouraging sign.
The Claymore/Delta Global Shipping (SEA) reacted well to the news, jumping about 11.5% in a single day. The top weightings in the fund are 61.2% industrials and 38.7% energy, while the top country is the United States at 12.5%. The Bahamas follow at 11.5% and Greece is 11.3%. Its correlation to the Baltic Dry Shipping Index is 0.61, largely because it has equity exposure.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Mr. Lydon serves as an independent trustee of certain mutual funds and ETFs that are managed by Guggenheim Investments; however, any opinions or forecasts expressed herein are solely those of Mr. Lydon and not those of Guggenheim Funds, Guggenheim Investments, Guggenheim Specialized Products, LLC or any of their affiliates. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.