Japan Tsunami and Malaysian markets

It was the worst earthquake in over 100 years that hit JAPAN recently. Loss of precious and priceless lives, gone in a swoop of a wave the size of which one would never have imagined. 


Our prayers for those who survived and are still trying to deal with the calamity. 

Reconstruction cost is estimated to be in USD161billion! 

How does it impact us in MALAYSIA you may ask. Some analysis reports are saying the impact is generally limited given that major ports in JAPAN and it industrial areas have been spared by the calamity. 

However, some sectors will see benefits and some will need tremendous adjustments in corporate directives and policies.

The are some Winners and they include the Timber sector and to a lesser extent, Steel, as 

these are raw materials used in reconstruction efforts. 

The Losers will be sectors with products consumed by Japan such as O&G and Tourism/Aviation. Auto companies too could be impacted as many parts are still sourced from Japan. 

Several stock broking houses are not so pessimistic on MALAYSIA - post JAPAN tsunami - and are maintaining a "Buy into Weakness" call on the Malaysian market. 

  

Impact on Malaysia limited. 

While the devastation in Japan appears very significant, with most of its ports and industries still intact, the impact on Malaysia and Malaysian corporates seems limited for now. A point to note - Japan is Malaysia’s 3rd largest export market and 2nd largest source of foreign investment. 

Timber and steel could be winners. 

With reconstruction efforts required, the timber and steel sectors could benefit from the Sendai earthquake. Timber in particular could see heightened demand given that many Japanese houses are constructed with the use of significant hardwood timber and Malaysia is still the world’s largest exporter of hardwood timber. Sarawakian timber boys such as WTK (Not Rated) and Ta Ann (Not Rated) have significant exposure to the Japanese housing market. 

Autos, Aviation, O&G and Utilities among the Losers. 

On the flip side, the devastation will likely put a dent in the tourism and travel industry for some time and therefore impact airlines flying to Japan. 

Elsewhere, our Malaysian auto companies still import CBU kits as well as some CKD parts from Japan, and this could potentially lead to some delays for the auto companies. In O&G, we note that the price of oil dropped Friday as investors were worried that the slowdown in the Japanese economy would crimp demand for oil. 

This in turn could hit sentiment in the short term. Finally, the closure of the nuclear plants could see greater demand for fossil fuel power generation such as from coal, which could then lead to prices escalating further.  

Still advising a Buy into Weakness. 

With greater clarity on the scope of devastation, perhaps there is still some short term weakness in the market and this could continue as an opportunity to Buy into Weakness, with year-end 1680 pts KLCI target intact.   

So hang on to your investments and no need to panic yet.