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Do macro trends influence your investing decisions?
Fri, 13 Feb Pre-Open

The stock markets have been touching new highs in the recent times. However, there is one sector that has been hit hard by the global economic slowdown, especially in China. China, once regarded as world's factory, has been gripped by a slowdown. This has led to the demand weakening for major commodities such as coal and iron ore. With a slowdown in the bookings of such commodities, much of the shipping fleet capacity has been rendered idle. Not only are shipping companies finding it tough to meet their interest payment commitments, but are likely to become unviable as well, with breakeven levels for the Baltic index much higher than at present.

As mentioned in an article in Business Standard, as if a lower spot rate was not enough there's additional pressure of contract renegotiation at still lower prices. As risk from major economies slowing down has increased, the experts believe that the scenario is unlikely to improve in the near term.

While it's a negative development for the entire shipping sector, it has brought some relief to key importers in steel and power sectors and grain exporters. So what is the read-across for investors from this development?

Well, this is just another sector where broad macro trend is likely to influence investing decisions. If falling freight rates for dry bulk can be a good reason to buy the expected beneficiaries, the same could be extended to invest in companies that use crude as raw material. Or to sectors that might benefit from the rate cut.

Except that any such logic would be flawed and unlikely to lead to strong investing returns in the long term. This is because no such events lead to a sustainable increase in intrinsic values of stocks. Sound investing is all about focusing on the bottom up approach rather than trying to benefit from the macro economic trends. And about finding stocks with attractive valuations, which in the current market scenario seems difficult.

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Jan 17, 2018 (Close)