By Paul R. La Monica
Japan’s Nikkei stock index surged Wednesday after two days of heavy selling following the devastating earthquake and tsunami.
That could mean that it may be a good time for long-term investors to place bets on leading Japanese companies still trading at a discount. But it may be premature to say that the crisis is over.
First and foremost, it’s still not yet clear just how many lives have been lost and what the ultimate cost to rebuild infrastructure destroyed by the earthquake and tsunami will be.
Fears of radiation leaks due to damaged reactors at a Japanese nuclear power plant have only added to the uncertainty. The meltdown worries, perhaps more than the actual damage from the earthquake and tsunami, were a key reason why the Nikkei plunged 6% Monday andnearly 11% Tuesday.
So while it is encouraging that Japan’s benchmark market indexgained almost 6% Wednesday, history shows us that Japanese stocks may take a while to fully recover.
Following the massive earthquake in Kobe, Japan in January 1995, the Nikkei plummeted nearly 25% by late June of that year. But as the chart at the top of this page shows, the good news for investors is that by January 1996, the Nikkei was nearly 7% higher than where it was before the Kobe disaster.
Brett Hammond, chief investment strategist with TIAA-CREF Asset Management in New York, said a similar situation may play out following Friday’s tragedy.
“When you look at disasters in developed countries, what you find is that there’s a big hit immediately. But you then see an enormous amount of stimulus and spending and often a quicker recovery than people expect,” Hammond said
So is it time to hunt for bargains? Perhaps. The United States-listed shares of Honda (HMC), for example, are still 7% lower than where they closed last Thursday. Toyota (TM) is down about 8% while Sony (SNE) is off by more than 12%.
“At risk of sounding callous, there may be some buying opportunities in Japan. The reaction was overdone due to pure fear,” said Milton Ezrati, senior economist and market strategist with Lord Abbett, an investment firm in Jersey City, N.J.