The coincidence of earthquakes of similar size hitting Japan and Ecuador on Saturday has highlighted how well prepared Japan is for the earthquakes that plague the countries along Asia's "ring of fire." To what extent this is reflected into the market moves is up for debate, and could offer interesting opportunities for investors.
In Tokyo trade, the Nikkei 225 index opened down 3% on Monday morning, and never recovered, closing down 3.4%. The broader Topix index, whick tracks 1,000 stocks on the Tokyo Stock Exchange, was only mariginally better off in afternoon trade, down 3% at the close. But I would expect the downturn to be short-lived, and that dips in the shares of Japanese manufacturers will not last long.
In separate events, Japan was hit by two quakes, one of 6.2 magnitude that came on Thursday and then an even bigger one of 7.0 that hit Saturday. That killed, at last count, 42 people. They struck Kyushu, Japan's southernmost main island, and centered on the prefecture of Kumamoto, Kyushu's industrial heartland. It most directly hit the town of Mishiki, creating a sense of unease and leaving some 100,000 in temporary shelters.
In Ecuador, a 7.8 magnitude quake wrought much more destruction when it hit on Saturday night. As of Sunday night, the death count was "at least 272," according to The New York Times, with another 2,527 injured. There was widespread destruction along the country's central coast, with residents calling the site a "war zone."
Scientists say there is no link between the quakes in such different parts of the world. But the death count alone shows how well the countries handle such disasters. The area that was hit in Japan is much more populated than that in Ecuador, yet six times as many people died in South America.
Toyota (TM), the world's largest carmaker, issued a statement that it would suspend production in stages on its vehicle-assembly lines between April 18 and 23 due to parts shortages. It closed down 4.8% in Tokyo trade.
Honda (HMC), which also said its operations would be disrupted, ended Tokyo trade down 2.9%. It has closed its Kumamoto factory until April 22, it said in a statement, expressing its "deepest sympathy and condlences to the victims."
Electronics maker Sony (SNE) saw its shares fall the most in more than two months, and cited damage at its Kyushu plant, which makes chips for cameras. It closed down 6.8% in Tokyo trade.
Renesas Electronics, which makes microchips for cars, shut down a semiconductor factory in Kumamoto immediately, confirming no casualties. But it has kept another plant in operation. It bore the heaviest brunt, down 11.8%.
While you can expect a downturn in major manufacturers, the trading opportunity is likely a very short-term window in which it may be a good idea to buy on the dips, unless a company reveals severe damage to its operations. To my mind, that is unlikely.
Japan is just about the most-prepared country in the world when it comes to handling earthquakes. I've been in Tokyo when a minor earthquake has hit. Everyone got on with their lives with little more acknoledgement than you'd get if the subway went by.
The bullet train stops as soon as it senses a tremor. Elevators in office towers stop working. Buildings are by law required to be built to withstand earthquakes, rules that were strengthened after the 2011 tragedy that led to the nuclear disaaster at Fukushima Dai-ichi power plant. That quake shone a spotlight on the inept operations and response of operator Tokyo Electric Power Co., better known as TEPCO.
Kyushu Electric Power may be the most interesting stock to watch in the next few days. Only one of Japan's 42 nuclear power plants has resumed operation since the terrible 2011 tsunami, although 26 have now applied to restart. The one that has fired back up is on Kyushu, the island hit by the earthquakes in Japan, and operated by that company. Its shares closed down 8% on Monday.
Japan's nuclear regulator, the Nuclear Regulation Authority, said on Monday that there was no need to suspend the nuclear power plant, state broadcaster NHK reported. Watch, however, for any update.