23 Jun 2011 | Matthew Brett

Exporters will benefit from continued Asia development 

The massive Tohoku earthquake has been a shocking event, and has had a huge impact on many Japanese people.  There have been many headlines surrounding the situation but it is important to understand that this was essentially a three part disaster. 

First a huge earthquake to which buildings generally stood up pretty well: a testament to Japanese building standards.  Second, a massive tsunami which caused a lot of destruction and loss of life: maybe there are some lessons to be learned here for the future.  Finally, as a consequence of the tsunami there has been a serious incident at the Fukashima power station which is continuing to cause concern and headlines. 

It is difficult to judge the long-term impact at this stage, but our sense is the Western media has generally focused too much on the nuclear issue at the expense of the very real destruction and loss of life caused by the Tsunami.

Of course, companies are much better placed to cope with this type of disaster than are individuals.  Although there have been some individual instances of damage to facilities, we do not believe that the value of the corporate sector as a whole has been impaired by the events.  Companies will be able to rebuild the damaged facilities – indeed many companies have cash on hand for precisely this type of circumstance. 

There will likely also be a lot of instances of supply chain disruption in Japan and globally over the next few months given Japan’s crucial role in a number of industries – particularly in industries that require a lot of separate components to make a finished product, such as electronics and cars.  

Generally Japanese companies have a March year end, and most have now reported full year results.  Traditionally Japanese companies issue forecasts for the coming year at the same time, but given circumstances around a quarter have decided not to make a forecast at this stage, and of the remainder the forecasts have been conservative, predicting sales and profits at around the same level as this year.

We continue to see a lot of opportunity to pick stocks in Japan and companies with the prospect for substantial earnings growth are especially interesting.  Japanese exporters in areas such as robotics and farm equipment are well placed to benefit from continuing Asian development. 

Meanwhile new companies are challenging incumbents in the retail and financial services markets through disruptive online offerings.  Finally, there are completely new areas of growth presented by technology advancement in areas such as mobile phones, which are allowing an explosion in mobile data usage and great opportunities for those companies able to provide attractive offerings in this area.