What happened
Shares of Israeli container shipping company ZIM Integrated Shipping Services (ZIM 0.07%) tumbled 3.4% through 11:05 a.m. EST Monday -- and it's no huge secret why. Across the shipping world, stocks including ZIM, Costamere, and Danaos Corporation are all sliding today.
And China is the reason.
NYSE: ZIM
Key Data Points
So what
As multiple media outlets have reported, protests against a government "zero-Covid" policy are spreading across China, threatening both the ruling regime's stability, the country's economy, and its ability to produce products that would need container shipping services to reach foreign markets. To cite just one example, CNBC reported this morning that Apple is likely to produce 6 million fewer iPhone Pro smartphones this month than it would like to produce, as a result of a combination of Covid outbreaks at its factories, government measures to contain the outbreaks, and protests against the containments.
Result: Less demand for ocean-going container shipping.
Now what
But this, too, shall pass.
There's an old saying in economics: "If something cannot go on forever, it will stop." As applied to today's situation, we can understand why China's government wants to stamp out Covid and has imposed draconian measures to accomplish this goal. But after three years of trying, and failing, and seeing its economic growth rate hobbled in consequence, it's starting to become apparent that "zero-Covid" is a policy that cannot be sustained forever.
Therefore, it will stop...eventually.
It's hard to say exactly when China will change its policy. What we can say for certain, though, is that the longer the zero-Covid policy remains in place, and Chinese products fail to ship to consumers who demand them, the greater the pent-up demand will grow. Eventually, zero-Covid will end, shipping will pick back up again, and container shipping companies like ZIM will be there to supply the demand.
Today's declining stock price may feel discouraging for ZIM investors. But the declines will eventually stop, and when they do, I have a feeling investors are going to quickly figure out that at a valuation of just four times 2023 estimated earnings, ZIM stock is quite the bargain.
