Philippine Stock Market Research

Tsunami Hits Japan; Ripples on the Philippine Economy

March 14, 2011

An underwater earthquake registering 9.0 on the Richter Scale sent a ten-meter high tsunami hurtling towards Sendai, Japan on 2:45pm Tokyo time, March 11, 2010.  This wreaked havoc on its airport, houses, buildings, oil refineries, nuclear power plants, infrastructure and properties.  The number of casualties is saddening.  Tsunami warnings were issued all over the Pacific, US and South America, and six-foot high tsunamis hit Hawaii and Oregon in the US.  Minor tsunamis also hit the Philippines, Okinawa and Indonesia.  The island of Japan moved more than two meters and the axis of the earth moved 10 cm from the quake.  The power of nature and the damage on Japan shown by the videos on TV and the internet were alarming.

The fifth most powerful earthquake in the world since 1900 has shaken the world’s third largest economy.  The Nikkei index is expected to head south from the natural disaster; however, it is not the end.  A Charles Schwab analyst in a Bloomberg news program reminded how some market indices recovered from natural disasters.  Indices of the Asian countries affected by the 2004 tsunami created by an underwater earthquake 9.3 on the Richter Scale bounced back after the event.  The 1999 earthquake in Turkey 7.4 on the Richter scale caused severe damage.  However, the ISE National 100 Index was at 6,000 level that time, now it is at the 60,000 level.  The January 17, 1995 Kobe earthquake in Japan 7.2 on the Richter Scale caused the Nikkei to drop by 9%.  After a week, it recovered by 6%.  Construction stocks also became the darling of the Nikkei the following years.  Force majeure may be devastating; however, rebuilding and recovery, despite its difficulties, follows.  This is from the power of the human spirit.  Below is a summary of markets that have recovered from natural disasters.

Summary of Stock Markets Hit by Natural Disasters

Index Event Date Index Level at Event Low Level After Event Index High Level One Year After Index High Level Two Years After
Indonesia Stock Exchange December 26, 2004 1,000 900 1,200 1,600
Stock Exchange of Thailand December 26, 2004 660 630 720 800
Istanbul Stock Exchange 100 August 17, 1999 5,000 5,000 20,000 15,000
Nikkei 225 January 17, 1995 18,000 14,000 18,000 23,000

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Below are BSP, NSCB and POEA stats and data on the Philippines and Japan.  With the event, all these figures are expected to weaken and eventually recover.

Foreign Trade with Japan

2009

Exports to Japan:  USD6.207 bn, 16% of the total

Imports from Japan:  USD5.351 bn, 12% of the total

10M10

Exports to Japan:  USD6.486 bn, 15% of the total

Imports from Japan:  USD5.563 bn, 12% of the total

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Foreign Direct Investments from Japan (FDI)

4Q10

USD41.2 bn.  That is 35.3% of the total. This came from USD63.1 bn in 2009.  Main FDI is the Manufacturing of Electronic Products.

2010

USD58.3 bn.  That is 29.8% of the total.  94,728 total jobs generated by 2010 FDIs.

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Forex Rate (PHP:JPY)

2005  0.5015

2006  0.4414

2007  0.3919

2008  0.5099

2009  0.5144

Jan-Feb 2011  0.5322

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Debt to Japan

USD13.622 bn

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Remittances from Japan

2009

Total:  USD773.561 mn, 4% of total remittances

From Landbased OFWs:  USD483.802 mn

From Seabased OFWs:  USD289.759 mn

2010

Total:  USD882.996 mn, 5% of total remittances

From Landbased OFWs:  USD572.289 mn

From Seabased OFWs:  USD310.707 mn

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OFWs in Japan

2009

Landbased:  6,418 out of 260,995 in Asia (or 2%).  1.4 mn OFWs in total as of 2009

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After retreating to the 3,700 level late February due to Middle East tensions and rising raw material prices, the PSEi rallied to the 3,900 level early March.  This movement follows the PSEi bands we introduced in our last article with 3,717 as the low end of our band and 4,084 as our central value for 2011.  With the event in Japan, the PSEi may find shelter first back in the low end of our band.  Scanning the listed companies, Japan is not a major export market of the food and beverages sector.  There are minimal effects on the property sector as 5% of OFW remittances come from Japan and the telecom sector as 2% of OFWs are from Japan.  We are not certain as of this time of the extent of the effects on the banking sector; however, it may be as minimal as the other sectors mentioned.  ICT TEU volumes may feel effects as foreign trade with Japan is 14% of the total.

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Pymwymi and Wallflower Funds Performance

The Pymwymi Fund is up 71.1% from inception date of January 3, 2010.  It is down 4.8% year-to-date.  It has shown resiliency against the negative news that has brought the PSEi down 6.9% year-to-date in 2011.

The Wallflower Fund is down 0.79% from stock acquisition dates in September and November 2010.  In the same periods, the PSEi is down 3.75%.

Disclaimer

The Philippine Stock Market Research report is solely for information. It should not be constituted as an offer for solicitation for the purchase or sale of securities mentioned. The information herein has been obtained from sources believed to be reliable. Whilst every effort has been made to ensure accuracy, we do not guarantee the accuracy or completeness of the report. All opinions and estimates expressed herein constitute our judgment as of this date made on a reasonable basis and are subject to change without notice. No liability can be expected for any loss arising from the use of this report or its contents. As this is general information, it does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may obtain this report.