Betting on a Chinese stock rebound? Crude tankers might be better

Part 3
Betting on a Chinese stock rebound? Crude tankers might be better (Part 3 of 13)

China’s relatively stable post-2013 loan growth helps oil tankers

New loan issuance affects the oil tanker shipping industry 

One of the key indicators that grabs analysts’ attention is China’s new loans. Issuing new loans is an important way of stimulating economic growth, as it increases demand. However, excessive debt can create unnecessary risks and adds to uncertainty.

China New LoansEnlarge Graph

Without proper regulation, high levels of debt could bring defaults and eventually leads to recessions, which will affect oil tanker shipping companies like Tsakos Energy Navigation Ltd. (TNP), Teekay Tankers Ltd. (TNK), Frontline Ltd. (FRO), and Nordic American Tanker Ltd. (NAT) as well as the Guggenheim Shipping ETF (SEA).

A marked decline in China’s monthly new loans

According to the data released by the People’s Bank of China, there were only 644.5 billion new loans issued in the Chinese yuan in February 2014—just half the amount lent in January 2014. The year-over-year growth in China’s monthly new loans for February was about 3.95%, compared to 23.26% for January.

However, keep in mind that China’s new loan has historically been the highest in the first month of the year, as banks rush to make new loans whose quota is set by the central bank for the year. Given how year-over-year growth has moved over the last few months, we might infer China is holding a neutral policy stance. When things appear to improve, China starts to tighten credit growth. But when loan growth appears to fall, loan growth returns next month.

If the past few months of trends are any guide for the future, you might say China is going through a phase of adjustments. While data might come out negative in the short term, we could see improvements in the medium term, as the government supports the economy a bit.

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