effect of Japan earthquake and nuclear meltdown on stock markets

After the 8.9 magnitude earthquake that hit Japan last Friday, investors now ask how this will affect them? and us?

Taking cue from recent earthquake struck New Zealand, their ratings got downgraded, and GDP forecasts sized down by half. Credit ratings were cut citing that the country may need to borrow more to get back on its feet.

For the Japan tragedy itself, fears that the earthquake could derail the country’s nascent economic recovery and increase Japan’s already massive public debt, which is 200% of gross domestic product, and led traders to believe less oil will be used by the 3rd largest economy on the World, hence the decline of oil overnight.

Insurance experts warned that global re-insurance companies – already reeling from the natural disasters that bluffed Australia and New Zealand over summer – would potentially pay an extreme cost.

“What we saw in the aftermath of the earthquake that devastated Japan’s Kobe district in 1995 was that the yen initially weakened before recovering very strongly as investors repatriated overseas funds,” said an analyst.

Nomura expects a “similar significant fiscal response from the authorities.”  Moreover, the Bank of Japan has already announced that they’re ready to boost the market with addition liquidity if necessary.

The common denominator seems to be that earthquake stricken countries like New Zealand and Japan would need money, borrow more money just to get back on their feet.  While local construction companies may benefit from this, the overall stoppage of production of factories, refineries will cause some GDP shortfall for the country, and hence lessen the need for importing and exporting raw materials and final products.

Any nuclear plant meltdown will only serve to exacerbate the situation and delay growth.

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