As the crisis in Japan continues – with the country suffering aftershocks and ongoing fears of meltdown at the Fukushima Daiichi nuclear plant – fund managers and economists assess the impact on the country’s markets and economy.
Japanese shares slumped a further 10 per cent today as concern mounted over nuclear radiation leaks in the aftermath of the earthquake disaster. The Nikkei 225 closed on 8,605.15, a fall of 10.55 per cent
* Simon Somerville, manager of the Jupiter Japan Income fund, highlights several companies in his portfolio that have fallen in immediate reaction to the events. East Japan Railway, which operates in the affected area, fell 18 per cent, while Tokio Marine dropped 16 per cent because of the impact on its insurance and reinsurance activities. Mitsubishi Heavy Industries and Toshiba, which have exposure to nuclear power, also suffered.
Somerville adds the nation’s “biggest concern” is the ongoing problems with its nuclear plants. With 11 of Japan’s 54 nuclear plants offline, some areas of the country are seeing rolling blackouts – which is having an impact on industrial production as well as households.
* Patrick Armstrong (pictured), joint managing partner and head of portfolio strategy and construction at Distinction Asset Management, agrees that the power cuts, combined with damaged manufacturing facilities and the focus on helping Japan’s people, will see output “decline severely” for the next two months.
Looking to the international impact, he says risk aversion will be stronger during the coming weeks as investors take time to analyse the repercussions of the crisis. Armstrong also predicts the price of crude oil will increase and demand for natural gas will rise, because they are alternatives to nuclear power. “We expect Western central banks will be more inclined to keep rates on hold than they were before the earthquake based on its short term negative impact on global economic growth,” he adds.
* Keith Wade, chief economist at Schroders, suggests the recent earthquake could have a greater impact than the Kobe disaster in 1995, even though Sendai is considered to be of less economic significance.
He explains that the tsunami which followed the quake led to “more intense” destruction than was seen in Kobe, which requires greater spending on reconstruction. Wade also notes that the problems with Japan’s power supply are likely to have an effect across the whole economy.
Wade says the crisis could cause Japan’s GDP to fall by between 1 per cent and 1.5 per cent in the spring quarter, driven by the fall in industrial output. However, he claims this will eventually be offset in the second half of the year and throughout 2012 by the increased reconstruction spending.