SHIPPING FINANCE: RECOVERY AND CHALLENGES | Sowoll

Release time: Tuesday, January 22, 2019
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The shipping market as a whole is in a cyclical downturn. The market for tankers, LPG and OSVs in the segment is still in the bottom range, but the dry bulk and container ship market has improved significantly.



Macroeconomic policy regulation, capital market supervision and a steady response to Sino-US economic and trade frictions are major challenges facing the Chinese economy in 2018. Looking back at Robert Mundell's "Mundellian Trilemma",the implication is that under the conditions of an open economy,the independent monetary policy, stable exchange rate, and free flow of capital cannot be realized at the same time.

As the expected currency continues to be oversold, the current decline in China's real economic investment returns continues, the total investment demand is insufficient and the effective supply shortage of the target is widening,  and the volatility of financial market capitalization is intensifying. Continued increase in the money supply will lead to continuous price increases. The trade surplus caused by the US trade war has declined, and the exchange rate depreciation pressure is growing.

Historically, the volatility of the RMB exchange rate has been positively correlated with China's foreign exchange reserves. Under normal circumstances, when the US dollar index is strong, the valuation effect will bring depreciation pressure on the RMB exchange rate. In order to maintain a stable exchange rate, selling the US dollar will result in a decline in foreign exchange reserves. The exchange rate is reflected in the fact that asset prices are subject to change as market expectation.

At present, the US economy has maintained a strong rebound.Compared with the European economy, in particularly, Italy's budget deficit of 2.4% that higher more than the target setting by EU has dragged down the European stock market and the euro exchange rate.


The widening gap between the US and Europe has kept the dollar stably in the medium term. Some countries that is falling exports and facing geopolitical risks with high external debt and domestic leverage may take the lead in breaking out the tail risk and smashing the asset price premium bubble, triggering a global economic crisis.
 
Global macroeconomic policies also affect specific industry dynamics and capacity utilization. From the perspective of the OECD region, the period of expansion from 2003 to 2008 is mainly reflected in the large investment in infrastructure and capacity expansion. Therefore, at this stage, all shipping segments are booming.

However, since the financial crisis era in 2009, overcapacity has become a persistent indicator of industry development. Looking forward to the dawn of 2019, the future expected investment in infrastructure and production capacity will benefit global trade and promote demand growth in the shipping sector.
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