Puzzled by Japanese Crisis? Opportunities & Challenges it can bring for Global Investors?

Some are now betting that other Asian countries will benefit from this crisis, whereas some are in favor of heavily shorting Japanese equities. What I can tell you is that it will surely be a rough patch for key US players such as Apple and HP, who are very much reliant upon the supply chain that has its roots in Japan.

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Who will Face Maximum Heat from this Crisis?

No doubt, Japan will take time to crawl back to its pre-crisis state, but one thing is certain that they will. The key concern for Japanese factories will be limited electricity supply as it is not possible to immediately fix the damage done at their nuclear facilities. This will intern impact productivity and more often offices will face blackouts. Cell phone manufactures and auto companies dependent on supplies from Japan will now have to explore the Asian region for immediate rebalancing of their supplies.

Radiation risks are of prime concern at the moment, but this is not a long term challenge. The real trouble ahead will be faced by the industrial sector which will continue to face power shortages for a long time.

Bearish Play on Japan

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200% daily return is a phenomenal thing. ProShares promises that kind of returns for ultra short term bearish traders on MSCI fund targeting a Japanese index of stocks. What more can you ask for? Beware; the risks can be of similar proportion on every rise in the index. This is certainly not recommended for an average investor as risks are way beyond what he may absorb.

How to Japanese Rebound Story?

If you are certain that a fast-track recovery will surprise investors, then you can go long on Japanese stocks through iShares MSCI index focusing on Japan and for sector specific play you can look around for other ETF’s. But I would recommend that you stick with a diversified fund when playing the Japanese recovery.

How to Invest in Rest of Asia?

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As Japan struggles to recover from the aftermath of multiple disasters, it will require immense support from nearby nations South Korea, Vietnam, India, Philippines and China. You can be almost certain that Japan will require to offshore a lot of manufacturing in order to rebuild quickly. This will make the Asian countries even more attractive buys for global investors.

So, another way to play this crisis is to leave Japan out of picture and invest in rest of Asia with ETFs such as Vanguard MSCI Pacific, which focuses on whole of Asia. If you want to completely avoid any kind of exposure to Japanese equities then prefer investing in a special fund that excludes Japan and invest in rest of Asia, iShares Asia.

Is it Worth Excluding Japan from your Portfolio?

However, I don’t feel it’s a good bet to exclude Japanese stocks as they are very much likely to rebound well from this disaster.

We cannot completely ignore the Bears here. Don’t forget the enormous $1trillion debt they have piled up for over a decade now. Now in such times, they might sell out on some of their held US treasury paper, which could bring a rampage in credit markets.

Now we can only do the guess work, and things could shape up entirely different. So let’s wait and closely track events as in Japanese rebuilding process many opportunities will welcome you with open hands.

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