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Are Shipping Stocks Shipwrecked
by the U.S. and China Disputes?
When the news broke in August about the 10% tariff on $300 billion of Chinese goods, shipping stocks saw a downturn. Unfortunately, small & microcap stocks took the biggest hit due to their size and structure. Most of these companies are not equipped to take a hit that large. Between the dispute among China and the US, the stock prices across the industry fluctuated. Although this sounds all bad, that is not the case. Not all shipping stocks are the same and many cater to different clients outside of China.
Keep an eye on currency. When China stabilized its currency on August 8 th, shipping stocks saw a slight gain, which is due to calmed tensions, and shipping carrying on smoothly. If investors keep an eye on currency rate changes, they may be able to invest or sell their shares at the right time and make a profit.
Still time to grow. Global stocks across all industries have unstable outlooks as the future of the tensions with China remain in the gray area. Smallcap shipping stocks still have room to grow as the tariffs have not been implemented yet, and consumer spending is surprisingly high.
Read up on the company. When the announcement to delay the tariffs flashed across headline news, most shipping stocks saw an increase in stock price. Although most of these companies do business with China, many of them do not. Some small companies also do business domestically, or primarily with neighboring countries, like Canada or South America. These companies are less likely to have a severe impact from the trade dispute.
Vulnerable. Smaller shipping stocks are more vulnerable to changes in global politics. These companies are more volatile than their larger competitors. With smaller balance sheets, they typically have less cash on hand with shrinking margins, making a quick bounce-back from the tariff hike more difficult.
Less resources. Larger companies can move their assets around faster than smallcap companies. Shipping companies typically have large assets on hand, and moving them takes time. Due to their limited resources, many of these small companies will not be able to react in time to the tariffs and they may see a high failure rate.
Easily impacted. Slowed global growth impacts the shipping industry as investors tend to pull away from these stocks, especially smallcap stocks. The stocks are easily moved by the US-China trade tensions, which are still up in the air. With tariffs being implemented, the volume of transport declines.
The ongoing dispute between the US and China has a rippling effect across markets worldwide. All industries have been impacted in direct or indirect ways, including shipping stocks. Smallcap shipping stocks may have an advantage that many investors may not see right away. Since many of these companies deal primarily with domestic shipping, or shipping to nearby countries, they are less likely to see a harsh impact due to the tariffs. However, since these companies are so much smaller than their competitors, they have fewer resources and cannot move their assets around to dodge the blow as quickly. Since the tariffs are put off until December, the future outlook of the effect this will have on smallcap shipping stocks is not clear.