beyondbrics

It hasn’t taken long for the financial impact of Japan’s earthquake/nuclear disaster to spread from Tokyo to other Asian markets.

On Monday, Asia ex-Japan was resilient in the face of the 6.2 per cent plunge in the Nikkei. On Tuesday a 10.5 per cent drop in Tokyo, driven by the worsening news from the Fukushima atomic power plant, prompted a widespread Asian sell-off. Investors have decided – as beyondbrics predicted on Monday – that such a crisis is bound to have region-wide economic impact.

Shares in Seoul closed closed down by 2.4 per cent, in Shanghai by 1.4 per cent and in Taiwan by 3.35 per cent. In Singapore, stocks finished 2.8 per cent lower, having earlier been over 3 per cent down, and in Hong Kong, the Hang Seng index ended down 2.9 per cent. Power companies were particularly badly hit, because of concerns about the effects of the nuclear crisis on the industry: Tata Power dropped 3.1 percent.

Manmohan Singh, who risked his premiership to secure India’s access to atomic reactors and supplies, faces opposition to his $175 billion investment plan after Japan’s strongest earthquake triggered the nuclear accident. Inspectors will review safety at India’s 20 nuclear reactors, Singh told parliament yesterday, two of which are the same design as those in Japan that were at risk of a meltdown.

The pattern was fairly logical, with markets with the biggest exposure to Japan through trade suffering the largest declines. As well as power engineering groups, airlines dropped particularly heavily, as operators pondered the possibility of reducing or cutting flights to Japan. Thai Airways International was down 4.4 per cent.

“The whole notion of risk, not only in financial markets but risk in general, needs to be rethought,” Sandeep Malhotra, a managing director at Clariden Leu, which oversees about $100 billion of assets, said in an interview with Bloomberg Television. “With respect to the Japanese market, we believe there may be further downside.”

Asia’s emerging markets are more dependent on the US than Japan for their final customers for exports and are rapidly developing both their domestic economies and their trade links with other EMs in the region and beyond. However, Japan remains the world’s third largest economy (after the US and China) and a huge force in manufacturing industries – supplying key high-value components to products assembled elsewhere in Asia.

As ft.com has reported, the strains are already showing – notably in the microchip industry. With power blackouts now a reality in Japan, shortages of Japan-made parts can only get worse. Little wonder that Taiwan, which plays such a crucial role in global electronics – and where global electronics looms large in the local economy – has seen the largest stock market fall after Japan.

Currencies on Tuesday showed greater resilience. The yen was up a little against the US dollar, trading 0.16 per cent higher at 81.53 at 0830 London time. the Korean won was down by 1 per cent, The Indonesian rupiah by 0.3 per cent and the Thai bhat by 0.46 per cent.

In a remarkably calm note, Standard Chartered Bank said:

Economies often have to cope with external shocks. For instance, in the wake of the financial crisis, global trade suffered. The economic and financial impact of this earthquake will largely be felt in Japan. The impact elsewhere will depend on how the disaster impacts prices of international goods – particularly given recent food-price and energy inflation. There will also be a focus on financial flows, given Japan’s
status as the world’s third-largest economy and one of the biggest private-sector savers.

When things settle down, Stanchart may well be proved right. But things haven’t settled down quite yet.