21 Mar 2011, Posted by Prem Malik in MALIK'S CORNER, No Comments.

Malik’s Corner; Japan

The tsunami and the earthquake pictures are still fresh in my mind. Quite apparent that regardless of what humans have achieved, Mother Nature has the upper hand. Japan needs our help. http://www.redcross.org/

Markets

As can be expected stock markets around the world are reacting negatively to the catastrophe in Japan. I have received money manager commentaries on the situation in Japan and the impact on industry segments. Before we go there, it is not a bad idea to assess what markets have done in previous natural disasters. This is interesting reading from a Desjardin market strategist on a blog written in the Globe and Mail today.

http://www.theglobeandmail.com/globe-investor/markets/markets-blog/how-natural-disasters-can-affect-stocks/article1942307/

“As equity markets around the world plunge this morning due to the earthquake crisis in Japan, Desjardins Securities market strategist Ed Sollbach has crunched the numbers on eight previous natural disasters over the last two decades and found that the impact to stock markets appears to be minimal.  

“The maximum decline after one week was only 1.3 per cent and after one month only 3.2 per cent,” Mr. Sollbach said in a research note this morning. “The average gain was 0.7 per cent after a week and 0.7 per cent after a month.”

The energy sector was one of the best-performing sectors after a disaster, while gold stocks also did well. Insurance companies didn’t do as badly as one might think. The worst loss for the TSX insurance sector was 2.1 per cent after one month, while gains averaged 1.9 per cent. There were gains in six of eight natural disasters.

What makes matters worse for markets now is that stocks are due for a correction and worries are high that the elevated price of oil will slow the global economy.”

Bigger picture:

1. The renaissance of nuclear power plants around the world will be questioned and uranium stocks will take a hit. Other fuels such as oil, coal, natural gas and hydro will be positively impacted.
2. Significant disruptions in electronic components and the auto industry. In the short term prices could be volatile and stabilize over the long term.
3. Japanese government has injected 23 trillion yen into the money markets and eased monetary policy. This will impact the future tax burden for the citizens of Japan. Debt is insular in Japan and so will not impact global debt markets.
4. Infrastructure companies will benefit from the massive rebuild, along with the forestry and related stocks.
5. With the exclusion of uranium stocks, the Canadian market should settle back in the next few weeks.

I will continue to monitor the situation and keep you all posted. In the meantime, my prayers join yours for the people of Japan.

Prem

DISCLAIMER: “The information contained herein was obtained from sources believed to be reliable. Its accuracy or completeness is not guaranteed and Queensbury Securities assumes no responsibility or liability”