Will there be fewer Japanese exports as a result of the earthquake and tsunami? The devastation caused by the worst earthquake in Japan’s recorded history and the subsequent tsunami was a terrible disaster. It washed away cars, buildings, ships, and thousands of human lives. It also damaged a number of nuclear power stations. Fewer Japanese exports could be the result of this disaster just as Japan needs the funds for a historic reconstruction effort similar to rebuilding after the Second World War. The specific problem that may result in fewer Japanese exports comes from the damage to power plants run by Tokyo Electric Power Company. Although the Northeaster coast of Japan that was hit by the tsunami is not heavily industrialized it is where several nuclear plants are located including that owned by Tokyo Electric Power Company. According to news sources half of the Japanese economy is located in the Tokyo Electric Power Company power grid. There have been blackouts already and, as summer approaches with the use of air conditioners, the company is warning customers that if they do not reduce their power consumption they will be subject to cutoffs. There have been many suggesting that now is a good time to invest in Japan as stock prices have been beaten down in the wake of the recent natural disaster. Now we have to wonder just how well Japanese industry will be able to cope with rolling blackouts.
Last week we talked about investment in nuclear power. Japan will certainly go forward with more nuclear plants in the future as they have no fossil fuel sources in the country and, thus are hostage, to oil and coal prices. Design will certainly be an issue as the problem with the damaged plants relates to losing their standby generators in the tsunami. The possibility of fewer Japanese exports is more immediate, however. The news is full of human interest stories of small businesses in Japan needing to shut down. The sum total of small companies cutting back could add up to a meaningful decrease in production and fewer Japanese exports. An alternative solution for Japanese companies would be to outsource. This would keep the company viable but would reduce incomes in the country. For those investing in Japanese companies the outsourcing alternative keeps profits alive and stock prices up.
If this scenario results in fewer Japanese exports who will benefit? Who will pick up the difference? Will it be mainland China, Taiwan, South Korea? Investing in this scenario requires knowledge of which companies will be affected by power shortages in Japan and who their competitors are. Large Japanese companies that already have outsourcing facilities will be able to more efficiently move a larger percentage of production off shore. Will, for example, Japanese car manufacturers move more production to US plants? If that is the case, who else supplies the US assembly plants for these companies? As always how to invest in stocks is to research the fundamentals and then follow the technical aspects pricing in order to buy and sell stock at optimal prices.
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