Japan Worries Impact ETFs

March 14th at 2:44pm by Tom Lydon

Exchange traded funds (ETFs) fell with the markets on Monday as investors struggled to assess the financial impact of Japan’s devastating earthquake and tsunami.

  • Tokyo stocks suffered their biggest fall in more than two years Monday as the earthquake left a trail of destruction, forcing authorities to cope with a nuclear emergency and estimates of thousands of deaths and billions of dollars in insurance losses. Several metal and building-materials stocks in Asia edged higher on hopes for reconstruction opportunities, while coal shares climbed and uranium miners plunged on worries about prospects for nuclear-power projects. “We possibly cannot ignore the impact that this quake will have in terms of geographical span and scale — as well as the psychological impact,” said Credit Suisse strategist Shun Maruyama in Tokyo. The ProShares UltraShort MSCI Japan ETF (NYSEArca: EWV) finished over 15% higher on Monday.
  • Though it will take weeks or longer to determine how much was actually lost in the Japanese earthquake and tsunami, investors sold insurance shares on Monday in fear of how high the total will go. At least one set of experts pegged the insured loss as high as $35 billion just from the earthquake and subsequent fires — to say nothing of tsunami damage that will surely add to the figure. Some financial analysts said the figure should be lower but still substantial. Insurance indexes in both the United States and Europe underperformed the broader market. Some analysts said the disaster, combined with heavy losses already suffered this year from floods in Australia and last month’s New Zealand earthquake, could push up global insurance prices, boosting insurers’ shares. The SPDR KBW Insurance ETF (NYSEArca: KIE) was down over 1.25% today
  • Energy stocks reversed course and rose on Monday as higher crude oil prices provided support, despite losses by nuclear power specialists in the wake of Japan’s stricken atomic reactors. Crude oil prices dropped below $100 a barrel before moving up at the close to end the session at $101.19 a barrel. Analysts pointed out some positive trends in the oil service group including an expected resumption in activity in the Gulf of Mexico, bottoming out of day rates, an uncertainty about oil supply from the politically challenged Middle East. The Market Vectors Solar Energy ETF (NYSEArca: KWT) gained over 7% today, while investors were thinking of oil alternatives.
  • Treasury prices rose Monday, pushing 2-year yields to the lowest level in nearly six weeks, as traders remained uncertain about the outlook for Japan and looked to the security of the U.S. There was also concern about the European Union countries and their long term economic picture, in addition to the conflict and protests in the Middle East. “The unfolding events in Japan, the Middle East and with the EU debt crisis should, in sum, keep a soft cap on Treasury rates,” said strategists at RBS Securities. The Direxion Daily 7-10 Year Treasury Bull 3x Shares ETF (NYSEArca: TYD) rose almost 1% on Monday.

Gregory A. Clay contributed to this article

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.