Investors were all too eager to run from Japanese companies on Monday. This is partly in response to concerns about the rising value of the yen, but mostly because Friday's devastating earthquake and tsunami have created an energy crisis in the country, adding to the humanitarian disaster.
Many companies in Japan have suspended operations amid power outages and disruptions to supply networks – not to mention the rising importance of giving employees an opportunity to assess the effect that the disaster has had on their own families.
Toyota Motor Corp. fell 6.2 per cent in New York, following a weekend announcement that it was shutting down all of its 12 Japanese plants on Monday, with plans to reassess the situation later in the day. Sony Corp. fell 7.8 per cent after it shut down six manufacturing plants for electronics components.
While many people recoil from the intrusion of investing into the far more urgent needs of disaster relief, the facts suggest that the flow of money never stops. Volumes of shares traded is truly impressive. In the case of Sony and Toyota American Depositary Receipts, which trade in New York, Monday volumes at midday were about three times the average.
And in Japan, the volume of shares traded among Nikkei 225 companies was twice the recent average – and higher than at any time during the 2008 financial crisis.
So, clearly, a lot of people within Japan and outside Japan are either running from risk or embracing it. While it is unclear at this point what the right approach is, it seems reasonable to put some faith in the country's ability to get back on its feet. This is the world's third largest economy, after all. And while Japan's economic growth was lacklustre before this tragedy struck, it has the wherewithal and determination to grow again.
Meanwhile, the decision to dump stocks like Toyota and Sony seems wrong-headed, or at least reflective of very short-term thinking. No doubt, this disaster is going to affect these companies in the near term. Shutting plants tends to do that. But these are multinational giants, with operations and revenues overseas. In its fiscal third quarter, for example, Toyota sold 1.8 million vehicles, about 30 per cent of which were in North America alone – with growing demand in South America, Africa and Asia. This demand is unlikely to waver.
If you are optimistic on Japan's future - and optimism helps at times like these - then taking a longer-term perspective on Japanese multinationals seems like a good approach as a human being, as well as an investor.
David Berman