Shares in Japanese giants including Sony, Nissan and Mitsubishi are likely to a hit this week as Japan's biggest earthquake on record hits operations.
Japanese shares under pressure after quake
Shares in Japanese industrial giants including Sony, Mitsubishi and Toyota are expected to come under intense pressure this week as Friday's massive earthquake and devastating tsunami disrupted major manufacturing centres.
Many of Japan's biggest companies have been forced to halt operations as the earthquake - the strongest on record to hit the country - caused a wave of destruction that killed thousands and raised fears of a radioactive release from damaged nuclear reactors.
Manufacturers, energy firms and other companies with facilities in Japan's north-eastern region said the disaster had caused extensive damage to their operations.
Sony said it had suspended operations at six production facilities as one factory flooded and the rest suffered damage. The electronics giant's shares ended 2.2 per cent down on Friday at ¥2,806.
The biggest Asian markets all ended the week in the red, with Japan's Nikkei slumping 1.7 per cent to 10,254.43 points. But the disaster occurred just before the close of the session, leaving traders little time to gauge the extent of the damage.
"For Japanese stocks it's going to be pretty negative [when the market opens tomorrow] and understandably so," said Saleem Khokhar, a senior fund manager at National Bank of Abu Dhabi.
"In terms of Asia there will be a contagion effect in the short term but the economic impact of Japan is not going to be huge on regional markets [in the Mena region]," Mr Khokhar said.
Nissan also stopped production at all four of its domestic car assembly factories, while Mitsubishi Materials, a unit of Mitsubishi, one of Japan's largest trading companies, said operations at one of its copper smelters was suspended because of a power outage.
Share prices at both Nissan and Mitsubishi were at their lowest levels in several months.
The Dow Jones Industrial Average and Standard & Poor's 500 rose 0.5 per cent and 0.7 per cent respectively on Friday after an initial sell-off in insurance companies was countered by gains for energy and materials groups, which are benefiting from a further drop in the price of crude oil.
The earthquake is the latest in a series of incidents that have rattled markets in recent days. Continued fighting in Libya and worries over political unrest in the Middle East has heightened concerns over oil supplies.
Oil fell 1.5 per cent to US$101.16 a barrel on the New York Mercantile Exchange on Friday and Brent crude fell 1.4 per cent to $113.84 a barrel on worries that Japanese demand will take a hit after damage to refineries in the affected area.
But the impact of the earthquake on global equities is expected to be localised, market commentators said.
Japan's currency rose on Friday on expectations that companies will repatriate yen to help to pay for rebuilding efforts. The yen rose 1.4 per cent against the dollar to ¥81.84, and was up 0.6 per cent against the euro at ¥113.16.
Traders are betting that insurers with exposure to Japan and companies based in the country will soon need to buy large quantities of yen to cover damages and pay out insurance claims.
Companies would be forced to exchange foreign notes for yen, further hurting the dollar, euro and other major currencies, the traders said.
"I expect there to be further pressure on the dollar against the yen," said Nick Beecroft, the senior foreign exchange consultant at Saxo Bank. "Experience has shown in similar instances, [such as] Kobe [earthquake], that there is a lot of repatriation of the yen as a result."
Mr Beecroft said repatriation would occur as the yen became a safe haven for bringing money back into the country in times of trouble.
The cost of insuring Japanese five-year debt rose to 83.5 basis points on Friday from about 77 basis points in the days leading up to the earthquake.