Shipping: Getting the Timing of Investment Decisions Right Proves Elusive in Today’s Market Conditions
According to Mr. Thomas Chasapis, Allied’s Research Analyst , “everyone is in a race to find the best strategy to tackle this turbulent environment at hand. Given that the pandemic has already left its mark and uncertainty is engrained in all aspects of the market, it is highly debatable if one should take a more myopic strategy, or if long-term scenario based modelling and macroeconomic analysis are the best way to go about it. Timing is the key component for those who aspire to take a short-term position”.
Chasapis said that “in the dry bulk sector, we have been for around 2 months now in a state of recovery, despite some slight corrections here and there. So, can we say that we are now on a more positive track? Taking on a technical analysis and based on decision-making processes from the perspective of the current market momentum, both indicate a far more bullish view (to some degree at least). However, being within a tail-risk regime where we struggle to see any sense of “normality” forming, nothing should be taken for granted. To put it differently, it would be of little surprise if we were to experience another negative dive, followed by yet another steep upward rally immediately thereafter, and all this taking place before the year comes to a close. What is more is that all this can take place differing significantly both in terms of duration and magnitude (volatility, range, etc.). So, if you try to succeed within a state of periodical and asymmetrical distributions in returns, the only way to really outperform the market ends up being an entry and exit strategy based purely on “good” timing. Given the present risks and opportunity costs, this may prove to be a fruitful strategy, however it is based on the assumption that one would have adequate intuition into the market movements that are about to unfold. However, how much of this intuition ends up being based on circumstantial evidence and/or luck at the end of the day?”
According to Allied’s analyst, “on the other hand, if you want to take a position based on a long-term outlook, things automatically become much trickier. We are relatively confident that the step back will be major in terms of economic activity (we are already talking about a global recession). However, given the dynamic nature of the ongoing situation, it is difficult to establish a “date”, as to when the global economy will (or can) move back into full recovery. Where does this leave us in terms of seaborne trade? Since the collapse of the dry bulk freight market back in 2016, many held “patient”, most probably anticipating a mini cycle in which strong earnings would eventually materialized at some point in the recovery process. Has this “cycle” already come and gone? If that’s the case, a rational decision would be to adapt for much more mediocre anticipations of market performance, minimizing as such the risks faced in the process. However, if this “cycle” yet to show its fruitful side and is somewhat “postponed” (due to the current circumstances), with firm earning levels set to materialize in the (not so distant) future, than this would dictate a much higher risk-taking approach in order to fully capitalize on the potential that lays ahead”, Chasapis concluded.
Nikos Roussanoglou, Hellenic Shipping News Worldwide