I guessed everyone’s attention has shifted from Middle East unrest to Japan’s devastating Earthquake. As I write, Nikkei has lost 1000+ points in 2 days. The 2nd day has spooked the markets in other parts of Asia, dropping about 2+% on the average. If you are still holding stocks, you would definitely be wondering whether to sell. Should you or not?
This natural disaster is not enough to bring the entire Japan down. Japan would rebuild and it takes time, but it won’t concede defeat. I always have great admiration for the determination in Japanese, which is one key success principle that made them a First World country after WWII. It was amazing how fast Japan rebuilt itself after the atomic bombs were dropped in Hiroshima and Nagasaki. Japan has lived through a period of high radiation and survived.
Japan had the famous lost decade and I think this is the best time for them to refocus into developing their country. This would bring back the spirit of the Japanese and I believe I can see a better Japan eventually. This may be good news to get them out of their comfort zone and make it up for the lost decade.
What are the causes of the stocks retreating? I can think of a 3 possibilities: 1) a natural reaction for investors who are frightened by the news and would want to take their money out of the market. I heard my mum and my partner worried about my stock positions last weekend and this proves to me that the majority of the retail investors would have the same perception. And we know perceptions shape the market. 2) Japanese liquidating their assets to raise cash for rebuilding the nation. I am not sure if this can happen so fast. There are such opinions and if it is the case, demand for Yen would go up as more Japanese converts their money back to Yen. 3) Foreigners pulling money out of Asia in general, in view of the possibility that the radiation spreads to other parts of Asia.
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I checked the Chernobyl accident in 26 Apr 1986, and it did little impact to the stock markets. Likewise for the Tsunami that impacted Asia on 26 Dec 2004. What would I do? I think this is a natural reaction in the market and I would hold my stocks for this time being. This week would be a crucial week to evaluate if the market trend has reversed. I expect good news – Radiation has been contained and the market does not drop more than what it had on 15 Mar in a single day within this week. If the good news do not realise, I would re-evaluate the situation and my position. Worst case, I would be financially fine even if I lose my entire investment capital.