The triple crisis in Japan – earthquake, tsunami and nuclear – will have a negative impact on global growth in the short term. The scope of the damage is yet to be assessed but will likely exceed the 20 trillion yen in damage sustained during the Kobe earthquake in 1995.
The chart below shows the Topix index performance after the 1995 earthquake. The index fell by 21% and bottomed 5 months later before rebounding to pre-earthquake levels only 11 months after the earthquake. During this period, construction, real estate and medical product industries outperformed while insurers, high-tech and cyclical sectors underperformed. Power companies stocks did well the last time. But with the nuclear crisis brewing, they are unlikely to repeat the positive performance.
Going by the previous experience, it may be too early to participate in any reconstruction recovery. Opportunities may be found in the construction sector. But with rolling power blackouts, it remains to be seen how industries will be impacted in the coming months. After all, Japan relies on nuclear power for one-third of its electricity needs.
The JPY was well-supported in the last earthquake. But with massive liquidity injection of 15 trillion yen by the Bank of Japan, the yen has started to erase earlier gains. The repatriation of yen by Japanese companies and investors in the coming weeks should support the yen at current levels.
Meanwhile, the near term market outlook remains mixed with the focus on Japan and the Middle East crisis. I remain optimistic in the global outlook and would become more aggressive on the buy side at lower levels.
* Chart from Citi Investment Research
The chart below shows the Topix index performance after the 1995 earthquake. The index fell by 21% and bottomed 5 months later before rebounding to pre-earthquake levels only 11 months after the earthquake. During this period, construction, real estate and medical product industries outperformed while insurers, high-tech and cyclical sectors underperformed. Power companies stocks did well the last time. But with the nuclear crisis brewing, they are unlikely to repeat the positive performance.
Going by the previous experience, it may be too early to participate in any reconstruction recovery. Opportunities may be found in the construction sector. But with rolling power blackouts, it remains to be seen how industries will be impacted in the coming months. After all, Japan relies on nuclear power for one-third of its electricity needs.
The JPY was well-supported in the last earthquake. But with massive liquidity injection of 15 trillion yen by the Bank of Japan, the yen has started to erase earlier gains. The repatriation of yen by Japanese companies and investors in the coming weeks should support the yen at current levels.
Meanwhile, the near term market outlook remains mixed with the focus on Japan and the Middle East crisis. I remain optimistic in the global outlook and would become more aggressive on the buy side at lower levels.
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