japan tsunami effects on capital market

The feared nuclear meltdown in Japan hasn’t happened and looks less and less like it will,” said Shane Oliver, head of investment strategy at AMP Capital Investors. “Investors are feeling less negative and so shares are having a bounce. It could prove temporary, though, if Middle East tensions lead to a further spike in the oil price.” Japanese Prime Minister Naoto Kan said on Monday that he could see “light at the end of the tunnel”, even as smoke at two of the Fukushima Dai-Ichi nuclear plant's reactors hampered efforts to restore cooling systems. The site was badly damaged by a 9.0-magnitude earthquake and subsequent tsunami on March 11

MARK COLVIN: A new report from the World Bank says that despite the enormous human toll of the earthquake and tsunami in Japan the effects on the East Asian economy will be limited. Reconstruction efforts are expected to speed up in the second half of the year, boosting growth.

But economists say some global companies will be hit, particularly those that need vital components from Japan.

Bronwyn Herbert reports.

BRONWYN HERBERT: Japan's earthquake, tsunami and the sight of radioactive plumes have shaken global markets. But in a new economic update on East Asia, the World Bank predicts the slowdown will only be temporary.

SHANE OLIVER: Well the broad message is that the impact will be more significant than was the case following the last major earthquake in Japan in 1995, that was the Kobe earthquake, largely because the damage has been on a broader scale. And of course one of the big factors this time around has been the disruption to the power supply.

BRONWYN HERBERT: Shane Oliver is the chief economist at AMP Capital Investors.

SHANE OLIVER: Just less than 10 per cent of the region's trade is with Japan. So there's certainly going to be an impact. That said though the rough mathematics is such that even if Japanese growth declines, if Japanese GDP declined say 0.5 per cent it's probably only going to knock about 0.1 or 0.2 per cent off Asian economic growth.

BRONWYN HERBERT: On Friday we saw the G7 nations intervene in an attempt to control the soaring Japanese yen. How much does the overall economic health of East Asia rely on a modest yen?

SHANE OLIVER: It is true that a lot of countries across Asia have borrowed against the yen. Say for example if the Japanese yen had risen substantially in value it could certainly be an issue for Thailand because 60 per cent of their long-term debt is denominated in Japanese yen.

And therefore the value of their debt would have gone up and therefore the repayment burden would have become somewhat more onerous if you like.

BRONWYN HERBERT: Economist Saul Eslake from the Grattan Institute says Japan faces similar financial challenges to other areas hit recently by natural disasters.

SAUL ESLAKE: Similar to that of the floods and cyclones in Queensland or the earthquake in Christchurch New Zealand. That is in the short term there is a downturn in economic activity not so much as a result of the damage itself but as a result of the business that can't or won't be done because of that damage.

But as reconstruction, repair and rebuilding gets underway there is a more than offsetting boost to growth as a result of all those activities.

BRONWYN HERBERT: But there are some key differences. Japan is an important link in global supply chains including car parts and flatscreen TVs. And this disruption to production spills into other economies.

SAUL ESLAKE: It's businesses in countries like Korea or Taiwan and even China who have discovered that the inability to source vital components from Japan is having an effect on their production as well.

Now this is not globally significant at this time. But it does mean that the Japanese earthquake and its aftermath may have a somewhat bigger and slightly longer lasting adverse impact on regional and perhaps global economic growth in Australia and New Zealand.

BRONWYN HERBERT: Japan's problems aren't the only international concerns making markets nervous. Military air strikes in Libya have added a new degree of uncertainty for global financial markets as have fresh concerns over a new round in the European debt crisis.

JEFF BRESNAHAN: I think you've only got to look at the day-to-day trading of the various share markets around the world to see how rattled markets really are.

BRONWYN HERBERT: Jeff Bresnahan is the managing director of superannuation research company SuperRatings.

Balanced super funds are considered one of the more conservative areas to invest. But already these funds have lost on average 2 per cent this month.

JEFF BRESNAHAN: Since July last year we've seen very, very steady growth month on month by super funds which has dragged them up to around about 9 per cent return at the end of Feb.

And then lo and behold the first two to three weeks of March and we've seen at least 2 per cent of those gains erased. And at one stage that was as high as 3.5 per cent. So it really has been a bumpy road because of world events in March.

BRONWYN HERBERT: Economists say the series of events have lead to a volatile share market. And it's had a negative impact on overall market confidence, at least for now.

MARK COLVIN: Bronwyn Herbert.

sourch: http://www.abc.net.au/pm/content/2011/s3169704.htm