JOIN USShock therapy: Ever Given to Evergrande
Covid-19 is well into completing its second year while the United States officially has more casualties than the Spanish Flu of 1918. As the planet escaped the virus to the virtual world, there have been seismic shifts in how we work, do business, and even spend leisure time. With this shift has come to a realisation, we do not have a handle on how smoothly to move the gears of global commerce.
The first sign of this was the jump in demand for ubiquitous computer chips - a shortfall that caused a rental cars shortage and a spike in prices of second-hand vehicles and shows no sign of cooling down. Along with this came disruptions in shipping - first shortage of containers as climate change and consequent inclement weather forced months of lengthy delays to goods and raw material alike.
In no small measure were vulnerabilities in shipping exposed when a ship (albeit a behemoth), Ever Given, ran aground in the Suez Canal, throwing a proverbial spanner in the supply-chain works.
Just as the reluctant giant (ship) was getting ‘tugged’ and ‘pulled’ and eventually freed, Delta Variant raised its ugly head and within months, after ravaging India, quickly spread to the rest of humanity, making a mockery of travel restrictions, lockdowns, and mask mandates. As one country after another saw spikes in infection (and battled Anti-Vaxxers) came the icing on the cake – Evergrande. This real estate developer has $300 billion in debt, equivalent to 2% of Chinese GDP.
A looming default, with inflation concerns (which would hit both consumption and demand), sent equity markets into a tizzy. But, as expected, everything bounced back. China announced a line to the banks to ensure liquidity and the world was right (at least according to Wall St) again.
A pertinent question is what gives systemic shocks, underemployment, slowing growth domestically, has not dampened the glitzy bull run. And as investors, if this toxic relationship between climate, economy and financial markets continues, how do we navigate these choppy waters?
Anecdotally, some sectors are doing well - a friend in IT said the biggest problem is holding onto people, making rapid jumps at up to 80% hikes. IT firms are therefore struggling with operations and rising costs. On the other hand, out-of-control money printing in the US and elsewhere, there is too much liquidity chasing the constant pool of businesses resulting in entrepreneurs cashing in via IPOs and stock sales.
(The writer is Partner, Infinity Alternatives)