Yes, I'm sure
Shadow/highlight doesn't change colors or tints. It changes the brightness or intensity of a color. That's not the same thing. Two, I've read the SMS docs/info many times in preparation for doing SMS dev (and know/talk with the man who's behind most of the R&D for the console, for emu purposes and demos). If SMS or GG has S/H, I would know about it

And he would have made a demo to show it off
The effect you're seeing is a mid screen scanline change. Be it via tilemap or by palette reg updates (I suspect tilemap, because you have enough vertical tilemap room to do it on a 8pixel tall row, and just repalette associated the rest of the timemap. I.e. you only need an two copy of the same 8pix tall row to animate the effect going up and down - the water level). That's not the same the and definitely not as flexible as something like S/H which works on a
pixel level basis (and like I said, doesn't effect "tint" or hue or such).