The Awful Financial Impact From Japan's 8.9-Quake (EWJ, JEQ, JOF, DXJ, SNE, TM, HMC, BRK-B, SNDK, MU)

It is hard to focus solely on the economic impact of tragedy and catastrophe when you read headlines such as “death count 60…” and “death count exceeding 100…”  Unfortunately, the damage and the death toll from this fresh 8.9 magnitude earthquake is likely to go much higher as after-shocks are seen.  The damage will also have an awful impact on Japan’s economy at a time where the global recovery is deemed as still be a very sensitive recovery.  Today’s event will have a negative economic impact against GDP as we have seen in the recent past.

The 1995 Great Hanshin earthquake, or Kobe earthquake, measured only 6.8 magnitude and the epicenter was 20 kilometers from Kobe (about 1.5 million people) that still cost more than 6,400 lives.  This caused roughly ten trillion yen in damage, which was about 2.5% of Japan’s GDP at the time.

Today’s earthquake was off of Sendai, Japan with a population of roughly 1 million.  The Fukushima nuclear facility is southwest of Sendai and this is the reported nuclear plant where the water level of the reactors is falling.

The Nikkei 225 had already been soft all day in Japanese trading and the quake came late in the trading day and only exaggerated the decline.  The Nikkei closed down 179.95 or by -1.72% at at 10,254.43 on Friday.  At 8:20 AM EST the iShares MSCI Japan Index (NYSE: EWJ) was down 1.5% at $10.82 on fairly active trading.  The Japan Equity Fund Inc. (NYSE: JEQ) has not yet traded and volume is only about 55,000 on average, but shares closed at $6.38 on Thursday and the 52-week range is $4.82 to $6.67.  The Japan Smaller Capitalization Fund Inc. (NYSE: JOF) is indicated down 0.7% at $9.15 on thin volume and its 52-week range is $7.55 to $9.85.  We have also not yet seen trading in the WisdomTree Japan Hedged Equity (NYSE: DXJ).

Sony Corporation (NYSE: SNE) is down 3.3% at $33.12 and it reported that there was no major damage at the Sony-Ericsson plant suppliers earlier this morning.  Toyota Motor Corp. (NYSE: TM) reported that 2 assembly plants in Northern Japan were shut down and its ADRs are down almost 3% at $87.52. Honda Motor Co., Ltd. (NYSE: HMC) reportedly has shut down plants after one death and multiple injuries affected it and its ADRs are down 4.2% at $39.02 this morning.

The big hit will most likely be the reinsurance players, whose shares in European trading are dragging down markets further… Hannover Re was down 4.6% in Germany, Swiss Re was down 4.3%, and MunichRe was down over 4% as well.  Berkshire Hathaway Inc. (NYSE: BRK-B) also has reinsurance activities but we have not yet assessed its exposure (if any) in Japan and its shares are indicated lower by 1.5% at $83.69 for its B-shares in pre-market trading.

SanDisk Corporation (NASDAQ: SNDK) has substantial factory activity for its Flash Partners and Flash Alliance ventures in Yokkaichi, Japan… The good news for this is that this is much farther south and west and is even on the other side of Tokyo from Sendai and well over 200 miles away as the crow flies.  SanDisk shares are down almost 2% at $44.04 but that may be more tied to the market than due to operations.

One potential winner as the world of semiconductors does have plants in northern Japan could be Micron Technology Inc. (NASDAQ: MU) due to U.S. operations and its shares are actually up 0.15% at $9.94 on a morning where stocks are indicated to be soft.

Keep in mind that these are only a handful of the go-to more liquid issues that have traded here or actively overseas.  There are many others and the damage unfortunately involves loss of lives and personal property as well.

JON C. OGG