Brief Update on Investment Perspective of Japan’s Earthquake

Last Friday’s earthquake in Japan has bought massive human misery. It will also have economic consequences for the global economy as well as Australian Companies.
Here is our first pass at identifying some industries and companies that are likely to be impacted in some way (either positively or negatively).

Insurance Companies
Insurance risk modelling group AIR Worldwide estimates that the total insured losses could be up to US$34.5bn excluding tsunami damage. QBE updated the market yesterday with a preliminary estimate that claims from the earthquake and tsunami would be around US$125 million, which is not financially significant to QBE. Other Australian insurers are not likely to have any exposure to this event.

Uranium Miners
The market is questioning the future strategy of nuclear energy following the threat of meltdown of several nuclear reactors. We have no exposure to uranium miners at GEM Capital and do not recommend pursuing this area.

Australian Inbound Tourism
Japanese and New Zealand tourists make up a large volume of inbound tourism to Australia. Listed companies that could be negatively impacted by earthquakes in both countries include Tabcorp (hotels and casino’s), Qantas and Virgin Blue. GEM Capital has very little exposure both directly and via managed funds to these sectors.

Japanese Property Groups
GEM Capital has no exposure to listed Japanese Property Companies which include Astro Japan Property Group and Galileo Japan Trust. In any case, both of these companies have stated that their properties were not significantly impacted.

Potential Beneficiaries
Australia’s coal industry and Liquefied Natural Gas producers could be a beneficiary if increased demand for these sources of energy over nuclear eventuates. Coal industry could suffer from a proposed carbon tax. Origin Energy has exposure to energy and in particular LNG.
Suppliers of construction materials, such as steel and concrete. This is likely to be short term in nature though.
We will provide a further update of this information on our website as we develop our thoughts and gather additional information, particularly to do with the banking system.
At this stage however we stress that this event does not alter our fundamental view of investments as it is likely that most of the impacts from an investment perspective (rather than human perspective) will be at the margin.
I trust that you have found this information useful.

Kind Regards
Mark Draper CFP, Dip FP
Authorised Representative