Global markets are reeling after the world’s third-largest economy was hit by an earthquake, flooded by a subsequent tsunami, and now faces the threat of nuclear radiation. And until the nuclear reactors are under control and the recovery efforts kick into gear, the market will remain volatile.
My heart goes out to the people of Japan. The massive earthquake and tsunami have caused significant damage, and it’s likely that we will see the death toll rise in the coming days. As we watch the news coverage, I have no doubt that we will see the hard-working people of the International Red Cross on the ground, and if you’re looking for a way to help the people of Japan and around the world, this is a solid organization that would appreciate your donation if you are so inclined.
Near term, the flooded farmlands in Japan will exacerbate food shortages, plus there will be a shortage of key goods due to extensive factory and infrastructure damage. The Bank of Japan will almost certainly provide a massive amount of financial aid and help boost Japan’s rebuilding efforts. The Bank of Japan initially injected $183.17 billion of fresh liquidity to help stimulate repair efforts and made $265 billion available to financial institutions to help stimulate the repair efforts. More stimulus money will likely be forthcoming, since the damage was so extensive, especially to many nuclear power plants, which obviously cost billions of dollars each.
This aid will likely help to dramatically boost Japan’s GDP growth long term because of the massive construction that will be required to repair infrastructure. In the interim, Japan’s GDP (the world’s third largest) will take a hit near term, since the earthquake caused massive damage and will disrupt Japan’s substantial exports, but all eyes will be on the country’s rebuilding efforts for communities and production facilities.
The electronics manufacturers in Japan, especially of semiconductors, are predominately located in southern Japan, which was far from the earthquake in northern Japan. However, supply disruptions may force other plants to close.
One of the major Japanese companies that are impacted by the earthquake and tsunami include car and motorcycle manufacturer Honda Motor Co. (NYSE: HMC). Four out of their five production facilities are now closed because of the devastation.
Nissan Motor Co. (OTC: NSANY), another of the major Japanese automakers, reports that all six of its production facilities are now closed. Toyota Motor Corp. (NYSE: TM) appears to be the hardest hit right now with all 12 of their production facilities closed.
Panasonic Corp. (NYSE: PC) is a major consumer electronics company that makes everything from televisions to batteries. It has been reported that some of Panasonic’s operations are offline, but the company was able to donate “500,000 batteries, 10,000 flashlights and $3 million for quake victims,” and boost production at unaffected plants in Japan. Sony Corp. (NYSE: SNE) is another very popular electronics company based in Japan, and recent news shows that six production facilities are now closed.
It is going to be a long road to recovery for Japan, and the uncertainty surrounding the situation there will continue to weigh on the market. The best defense in this type of a market is a portfolio that is reinforced with fundamentally solid stock picks. The volatility will shake the market, and investors will seek safety. What they will flock to are companies with strong earnings growth and strong forward guidance.
My advice to all investors like you right now is not to panic, but to understand that the market has a lot of news to digest and that it will be bumpy in the near term. Check all of your holdings in my Portfolio Grader tool to make sure they have the fundamentals buyers are looking for right now.
