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

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

Why tanker vessel prices continue to rise despite China concerns

Vessel value continues to rise

While crude tankers such as Teekay Tankers Ltd. (TNK), Tsakos Energy Navigation Ltd. (TNP), Nordic American Tanker Ltd. (NAT), DryShips Inc. (DRYS), and the Guggenheim Shipping ETF (SEA) were negatively affected by a slew of negative news coming out of China over the last few weeks, the latest tanker value index available from VesselsValue.com suggests shipping companies are still pretty optimistic.

Tanker Index and Key StocksEnlarge Graph

Shrugging off market weakness

While crude tankers and the U.S. market pulled back on the second week of March, tanker value index (measured in USD per deadweight of capacity) rose from $287.31 on March 11, 2014, to $288.79 on March 18. On March 25, the index rose slightly higher, to $288.83.

Analysts follow vessel values because they affect companies’ valuations. As shipping companies are asset-intensive, and the majority of their balance sheets are built on ships, you could say the value of a company is essentially the price of its assets if it were sold in the market at that moment.

The importance of vessel value

Investors can also view vessel values as a tool to get an idea of what industry insiders, such as brokers and shipping managers, are thinking. A ship is like an investment property that would generate income for a specific amount of time. If people expect rent to go up, or the returns from purchasing a house are high, people should bid up or buy enough houses to push property values higher.

Likewise, when ship prices go up, they generally reflect expectations of higher shipping rates ahead, or that current vessel prices are cheap.

To learn more about investing in the marine shipping industry, see the Market Realist series Dry bulk investors’ eyes and ears are on the Chinese government.

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