First off, my thoughts and prayers go out to the people of Japan where I have quite a few friends.
Investing at times can be a very difficult job. You have to continue to work while watching a tragedy unfold before your eyes. Sometimes the tragedy is the mortgage crisis; sometimes it is protests, war, or a natural disaster. Through it all you have to keep your mind on your work and manage these risks.
You cannot escape the tragedy in Japan and how it affects investors’ portfolios. If you are a holder of any Japanese ETFs or equities your investments now take on a different, uncomfortable feel. Should you sell and would you feel guilty if you do in fact sell? Do you buy as a sign of support trying to buy stocks on a possible dip?
For those who are wondering how to play this from an investment perspective, here are my thoughts. Most plays only last a few weeks to a month so they are only for the most daring of traders. Don’t expect massive profits to be made. In times like these, companies are not focused on profits and losses as there are more important matters at hand.
Long Japanese construction firms as they will be very busy for the next few years rebuilding northern Japan. Firms that specialize in large scale contracts like rebuilding power plants and natural gas storage facilities will see an increase in business.
Kubota (KUB) is a Japanese based equipment manufacturer whose tractors will likely be in high demand. Revenues have been flat over the past year and the stock has moved lower over the past month. It is likely that business will pick up over the next year as destroyed farm equipment is replaced and being a Japanese company this will play to their favor as the government will likely encourage the purchase of local equipment to help the damaged economy.
Long Asian cement makers, especially those with significant access to Japan.
Hold gold and silver. There has been a tremendous amount of volatility lately and you need to let the market determine the direction. Do not sell but look for value.
This is a different circumstance in terms of providing liquidity to the economy. In fact, this may end help end deflation in the Japanese economy over the next year as price pressures from shortages become apparent.
Copper and steel will be in high demand over the next year as infrastructure is rebuilt. Companies like Rio Tinto (RIO), BHP Billiton (BHP), Freeport McMoran (FCX), and Teck Cominco (TCK) will see additional demand for their copper, steel, and coal products.
Uranium is a short under the current circumstances with the problems at the Fukushima and the Tokai nuclear power plants. This will fuel negative press in the coming months and likely push stocks lower providing a buying opportunity.
Tokyo Electric Power (OTCPK:TKECF) is a short as well due to questions regarding loss of revenues, generation capacity, power lines, and how they intend on rebuilding their infrastructure.
The stocks I mention below are only for those international and institutional investors who can invest globally as buying these stocks OTC in the US can be difficult and problematic.
Long Asian agriculture stocks since farmland was wiped out. Not sure how long it will take to clear the farmland and get it ready for planting but first the families need to rebuild their homes and the infrastructure needs to be rebuilt.
Stocks like Chaoda Modern Agriculture (OTCPK:CMGHF), which is based in China and able to grow fruits and vegetables will likely see stronger demand for exports to Japan.
One beneficiary of exports to Japan is Thailand which just finalized a free trade agreement a few years ago reducing and eliminating tariffs between the two countries.
In Thailand, investors looking for a rice play might give Patum Rice Mill & Granery PCL a look as there are very few listed rice equities globally. I warn investors because PRG is a highly illiquid stock which may not trade for days on end.
TVO Vegetable Oil PCL is the largest soybean oil producer in Southeast Asia and in the process of expanding capacity by 15%.
A final Thai agriculture stock is Chiangmai Frozen Foods PCL. CM is a manufacturer and exporter of frozen fruit and vegetables. A portion of CM’s frozen food is exported to Japan.
It is too early to say if this will bring Japan out of deflation. There will be a drop in GDP during the next few months as damage is assessed and reconstruction begins. In terms of exports it will likely affect companies in the short-term but production from companies like Nissan and Toyota can be temporarily shifted elsewhere around the globe. Depending on the final destination, Thailand may see a bump in exports as production is temporarily transferred.
As reconstruction starts, demand for raw materials will increase as will employment. Shortages may appear in some agricultural commodities as entire crops were either wiped out or planting seasons will be missed. It is too early to tell which commodities will feel the brunt of the shortages but prices should rise as supply is taken off the market.
Japan will rebuild and move forward. The government is implementing procedures created after the Kobe quake when the government was cited for a lack of fast response. Both political parties have put aside their differences in order to help lead the country out of this trying period.
If you are thinking about donating to a charity please think of the children who lost a parent or both parents to this tragedy as this could be the greatest tragedy of all.
Disclosure: The author is long Patum Rice Mill & Granery PCL and TVO Vegetable Oil PCL and TCK