‘Ever Given’ a hoot about the Canal?

Just to recap, a strong gust of wind blew a container ship, the Ever Given, into the banks of the Suez Canal causing total blockage. Since opening in 1869, a vital trade route between the east and the west is now the merchant shipping’s equivalent of the silk board junction, causing havoc in strained global supply lines.

According to APN, “More than 150 vessels are now backed up, with hundreds more (300 in the next two weeks according to Refinitiv) headed to the vital waterway, and losses to global shipping mounting.”

The implications are not just for the shipping industry from transit delays or for the Suez Canal itself but for producers, manufacturers and sellers already facing operational constrains with a resurging virus. Down the line for us as consumers, in addition to shortages brought on by the pandemic, we may also see prices of essentials and non-essentials rise (Tried buying a mid-range bicycle of your choice of late or a standing desk or that ideal dishwasher from the Germans? Still a problem notwithstanding the Atmanirbhar initiatives).

Read | Suez Canal Authority considering discount for ships affected by blockage

Modern-day Butterfly effect, except for flapping wings we have a 400-meter 200k DWT container ship in 74 kmph winds. While this is not a happy situation, it is not a catastrophic event. Ever Given will eventually be on its merry way and, a few months down the line the Suez will see business as usual.

What it does bring into sharp focus is seemingly innocuous events can derail large plans. In this case a sandstorm. And the more the uncertainty rises, the more is the governmental temptation to engineer apparent solutions including tariff barriers, procedural changes and other monetary or fiscal intervention. Question is what do we do? But more on that later.

The financial markets took note with a minor sandstorm of their own. Coupled with US China trade talks (sic) and other assorted ills, most markets ended lower - Nifty, Nasdaq100 were down, and HangSeng Index (a Greater China proxy) was flat notwithstanding the rebounding Chinese Economy. Bonds shaved some of their losses while Gold was flat, and Cryptocurrencies showed positive moves, showing a lower appetite for risk.

One temptation has been to seek safety in all those FOMO driven growth areas but that too came crashing down with some global investment baskets correcting 40-50%.

In the Indian context, it gave a signal to both rebalance portfolios and for those still sitting on the side-lines, an entry point to start building one. Conventional wisdom says allocate to diverse asset classes to manage risk (including event risk like Ever Given), what is left unsaid is how does one manage the asset basket once it has been bought? And are those asset classes going to remain constant forever? The straight answer is no.

As compared to the global investors, Indian portfolios lack two critical components which may cushion such shocks: Real Assets and Commodities – neither of which were readily available till recently, Gold securities notwithstanding.

While commodity funds seem to be some distance away (mostly because of skill shortage at current asset management firms), Real Assets are picking up with 15 odd InVit and REIT approvals i.e., small ticket investments into Office Buildings, Solar Plants, Power Distribution, Toll Roads and others. Not only are these easily traded on major stock exchanges, the demise of the 60:40 has given birth to a new breed of investment platforms which seamlessly shrink wrap a bespoke precision managed portfolio.

As always consult with your SEBI regulated professional, albeit a technology aided one, for any advice.