HONG KONG: Stocks in Japan may extend losses when trading resumes though the worst earthquake on record in the third-biggest economy is unlikely to dent the two-year bull market in global equities.
The Nikkei 225 Stock Average will slide about 2 per cent when trading begins, futures show. The domestic impact may be limited because lost production from the Tohoku region where the quake struck might not be enough to spur a recession, Bank of America Corp. said. The Bank of Japan pledged to ensure financial stability by providing liquidity.
The fastest global economic growth since 2007 and record US profits that helped spur the 95 per cent rally in the MSCI All-Country World Index of 45 nations should be intact, investors said. While the quake adds to concerns such as violence in Libya and Europe's debt crisis, shares may benefit from reduced inflation expectations as damage to oil refineries curbs demand for crude.
"It's a very bad situation, but from a market standpoint it may not be so negative," said Patrick Legland, the Paris- based global head of research and strategy at Societe Generale SA, which oversees about US$300 billion (US$1 = RM3.04).
"I expect the Japanese market to be down in the short term, but there is so much to rebuild that all in all it may be positive in terms of longer- term demand and investments."
The Nikkei 225 tumbled 1.7 per cent to 10,254.43 by the close March 11 , which came 14 minutes after the 8.9-magnitude quake devastated areas of northeast Japan, killing more than 680 people. Yen-denominated Nikkei 225 futures expiring in June ended last week at 10,005 in Chicago, down from the closing levels of 10,075 in Singapore and 10,170 in Osaka, Japan.
The iShares MSCI Japan exchange-traded fund dropped 1.7 per cent in the US on March 11. American depositary receipts of Tokyo-based Tokio Marine Holdings Inc plunged 8.2 per cent, the most in two years. Tokyo-based Honda Motor Corp and Nissan Motor Co of Yokohama fell over 2.2 per cent.
Hitachi Ltd of Tokyo, a maker of nuclear-power plants, shed 2.2 per cent in the US Tokyo Electric Power Co, battling to prevent a meltdown of two reactors, is using sea water to cool one of the reactors and prevent damage to the chamber holding its radioactive core. Its shares fell 1.5 per cent to 2,121 yen on March 11 .
The Tokyo Stock Exchange has a system of price limits that curbs how much stocks can rise or fall in a single day. The restrictions are determined based on the previous day's closing price, according to the TSE website.
Global stocks ended little changed as declines of 0.7 per cent or more in China, Hong Kong and Australia were offset by a 0.7 per cent advance in the Standard & Poor's 500 Index.
The MSCI All-Country gauge rose less than 0.1 per cent to 336.73. US shares were boosted by a 1.5 per cent drop in oil spurred by speculation the temblor would curb demand in the world's third- biggest oil-consuming country.
Investors are trying to assess whether the quake will hurt Japan's economy enough to derail worldwide growth spurred by more than US$12 trillion pumped into the financial system by governments and central banks since 2008. Global gross domestic product is forecast to expand 4.4 per cent this year and 4.5 per cent in 2012, according to the Washington-based International Monetary Fund.
Japan accounted for US$5.4 trillion, or 8.7 per cent, of world GDP in 2010, when the global economy expanded by 5 per cent, the fastest pace since 2007, the IMF said. Japan may expand 1.5 per cent this year, the fifth-worst rate among the world's 24 developed nations, according to the IMF's World Economic Outlook from October.
"If you're talking at the level of the global economy, I'd say it's very limited," said Michael Shaoul, chairman of Marketfield Asset Management, which oversees US$1 billion in New York. "When you get those dramatic events, you should try not to do too much unless it's absolutely obvious the impacts."
Equity bulls are counting on record US earnings. Profit for S&P 500 companies will total US$96.68 a share this year, according to the average analyst estimate in a Bloomberg survey.
A 17 per cent increase in crude futures trading in New York since February 18 has helped push the S&P 500 down 2.9 per cent from its 32-month high of 1,343.01, data compiled by Bloomberg show. The oil contract retreated March 11 after a storage-tank fire shut Cosmo Oil Co's 220,000 barrel-a-day refinery in Chiba, outside Tokyo, and JX Nippon Oil & Energy Corp closed refineries in Sendai, Kashima and Negishi.
"Japan is one of the largest economies in the world, so right now it may ease some of the global inflationary pressures because it lowers the demand for oil and materials," SocGen's Legland said.
The earthquake is the latest shock to an economy that has the fastest-ageing population in the developed world and has been mired in deflation for much of the past two decades. The Nikkei 225 has fallen 74 per cent since December 1989 as land prices tumbled to about half their peak levels in the late 1980s. The country's real GDP grew at an average 0.8 per cent pace in the past 10 years, compared with 1.7 per cent in the US.
The benchmark index for Japanese stocks lost 3 per cent last year as the yen at its strongest annual average level against the dollar since at least 1971 dimmed the outlook for export earnings. The country depends on demand from China and the US, the destination for 35 per cent of Japanese shipments.
The ruling Democratic Party of Japan has few options to offset any growth that is lost to the quake.
The Ministry of Finance projected in January that government debt will increase 5.8 per cent to a record 997.7 trillion yen (100 yen = RM3.67) in the year starting April 1. - Bloomberg
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