What Investments Will Be Most Affected by the Tragedy in Japan?
First and foremost, we at Taipan offer our thoughts and prayers to everyone who has been affected by the recent events that have struck Japan. As a trader or investor, as awkward and sometimes morbid as it may be, you must think about how your investment portfolio will be affected by a natural disaster such as this.
Given the enormity, severity and far-reaching ramifications of an event like we have seen, finding an investment angle can be a daunting task.
A good friend and fellow trader, Jeff Tomasulo, was kind enough to send me a list he compiled of the companies, ETFs and currency funds that may be correlated directly or indirectly to the disaster. He also gave me permission to share this list with you. I’ve narrowed it down to key companies and investments (because with a tragedy as big as what’s unfolding in Japan can affect huge numbers of investments) and offered commentary to help rationalize each sector for you.
[More from Jared Levy: "The Two Best “Turnaround” Stocks of 2011"]
The following ETFs are traded here in the States and allow you to take bullish or bearish positions in a basket of stocks or currency. The Japanese stock market has been weak, but the yen has been rallying. Investments in either of these ETFs require further research. There are many forces pulling on both the currency and profitability of Japanese companies. Speculating on these types of occurrences requires great skill; use caution.
- iShares MSCI Japan Index (EWJ:NYSE) – This is a very wide stock index that encompasses 85% of total equities in Japan. It gives you broad exposure to the Japanese stock market, which still looks weak.
- CurrencyShares Japanese Yen Trust (FXY:NYSE) — This is an ETF that essentially tracks performance of the USD/Japanese yen pair, multiplied by 100. It trades similar to stock. If the yen is increasing in strength against the dollar, the index is rising and vice versa. It is an alternative to trading the FX markets.
One thing to keep in mind is that Japan’s economy is heavily reliant on exports. A stronger currency makes Japan’s exports more expensive for other countries to buy. The severe damage to Japan’s infrastructure will also impede production and exports.
Below is a list of Japanese companies that trade on U.S. exchanges. Basically these stocks trade in tandem with their stocks listed overseas. An ADR (American depositary receipt) trades just like a regular stock. They are an easy way for the average investor to buy or short a foreign company.
Some of these companies may or may not be severely affected; remember that many of them sell products around the world. Problems may arise if their factories are damaged or if they have trouble shipping goods.
- Advantest Corp. (ATE:NYSE) – chipmaker
- Nintendo Co. (NTDOY:Pink Sheet) — game consol maker
- Sony Corp. (SNE:NYSE) – electronics such as cameras, televisions, video players
- Panasonic Corp. (PC:NYSE) – similar to Sony
- Canon (CAJ:NYSE) -- digital and manual cameras, printers and copiers
- Hitachi Ltd. (HIT:NYSE) -- electronics, power tools, and even power systems for nuclear plants
- Nippon Telegraph & Telephone Corp. (NTT:NYSE) — mobile phone provider
- Honda Motor (HMC:NYSE) – manufacturer of automobiles, motorcycles, and multi-utility vehicles
- Nissan Motor Corp. (NSANY:Pink Sheet) – makes automotives products and industrial machinery
- Toyota Motor (TM:NYSE) — major automaker
- Mitsui (MITSY:NASDAQ)– general trading company
Some of these companies also have production in other countries, so going through this list with a fine-toothed comb could help you find companies whose production will not be hampered as greatly as others with production in Japan.
Insurance companies may have exposure to Japan, as they may have to pay large claims to make good on their policies.
Here are a couple companies in that space that may have exposure.
- Aflac (AFL:NYSE)
- Berkshire Hathaway (BRK-B:NYSE)
- Prudential (PRU:NYSE)
- Travelers (TRV:NYSE)
- Aviva Plc (AV:NYSE)
- ACE Limited (ACE:NYSE)
- Allstate (ALL:NYSE)
- Everest Re Group, Ltd.(RE:NYSE)
- RenaissanceRe Holdings Ltd. (RNR:NYSE)
This sector requires some work to understand. One company, Aflac (AFL:NYSE) previously said it is the No. 1 insurance company in Japan in terms of individual policies in force and Aflac Japan’s revenues accounted for 75% of the company’s total revenues in 2010. That exposure may put continued pressure on the company famous for their quacking duck.
Disaster Prevention and Protection
Preparing for disaster and preventing the loss of life and property is big business; these two companies may see future investments from municipalities, governments, builders, etc. who want not only get an early warning, but protect structures from damage.
- Taylor Devices (TAYD:NASDAQ) produces seismic dampers, which are designed to ameliorate the effects of earthquake tremors on structures and represent a substantial part of the business of the company.
- Sutron Corp. (STRN:NASDAQ) specializes in meteorological and oceanic management of water resources for early warning of disastrous floods, storms or tsunamis, and for the optimization of hydropower plants.
This sector is one of the first to see investment interest after a disaster. After the 2004 tsunami that killed hundreds of thousands of people from Thailand and Indonesia to India and Sri Lanka, Taylor Devices jumped from $2.52 to $7.24 overnight.
If a substantial number of Japan’s nuclear reactors remain offline or if radiation leaks continue, you can bet that alternative energy sources will not only be needed, but demanded by the people/government.
Traditional thermal generation is first on the list and less expensive than coal, oil, and natural gas/LNG.
Solar panels and wind turbines are more costly, but may get serious consideration given the circumstances.
- Tesoro (TSO:NYSE) — oil and gas refiner
- Valero (VLO:NYSE) — oil and gas refiner
- Hess (HES:NYSE) -- oil and gas refiner
- Marathon Oil (MRO:NYSE) — oil and gas refiner
- First Solar (FSLR:NASDAQ) – solar panel manufacturer
- United States Natural Gas Fund (UNG:NYSE) — Natural gas fund ETF
Japan imports nearly all its energy — oil, natural gas, fuel… Companies from refiners to alternative energy equipment manufacturers could be in hot demand.
Overall Rebuilding Process
- Shaw Group, Inc. (SHAW:NYSE)-- rebuilds nuclear plants
- VALE S.A. (VALE:NYSE) – iron ore and other metals mining company
- Freeport-McMoRan (FCX:NYSE) — copper and gold mining, infrastructure
- Fluor (FLR:NYSE) — engineering company for energy, infrastructure, and government
- Chicago Bridge and Iron (CBI:NYSE) – engineering, procurement and construction, energy and natural resource industries
There are many companies that are not listed here that may still be affected by the quake. Obviously, the rebuilding and/or removal of nuclear power plants can include another basket of companies, but for now, this list should get your mind going and allow you to take your research even further.
But you may already be holding some of these companies I’ve listed today in your investment portfolio, and are wondering if they’re safe to keep holding. By breaking down this list into specific categories, I’ve shown you where these companies fall — in the disaster area or the rebuilding area.
Those in the disaster area are likely to experience more pain. After the dust settles, those in the rebuilding categories may generate some interest.
For now, let’s keep Japan in our thoughts.
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