Financial markets yesterday continued to respond erratically in the aftermath of Friday’s natural disasters in Japan and fears of fallout from damaged nuclear reactors.
Early in the trading day, the country’s misfortune was seen as an opportunity for some.
Bloomberg reported emerging market stocks “rose the most in a week as falling oil prices eased inflation concerns and steel makers surged on speculation (the) earthquake will increase demand for building materials”.
But the benchmark Nikkei 225 stock average plunged 6.2 percent. And, as the trading day progressed, the world’s major markets reflected caution.
Among the hardest hit were shares of reinsurers who could foot a big chunk of the bill.
In a note on its website yesterday, global reinsurer Swiss Re described the circumstances in Japan as “particularly complex”.
Depending on the cause of the damage, the cover is provided by different sources.
Swiss Re explained that in terms of residential insurance policies, cover for earthquake shock and tsunami were provided by a government-run scheme.
“This cover is typically not reinsured in the private market. (But) cover for fire following earthquake is provided by primary insurers and is typically protected by their reinsurance coverage.”
In the case of commercial and industrial insurance policies, cover is sold in the private market and is widely purchased for earthquakes, fire following earthquakes and tsunamis, according to the reinsurer.
Coverage for nuclear facilities in Japan excludes earthquake shock, fire following earthquake and tsunami, both in terms of physical damage and liability. And coverage for property policies excludes nuclear contamination.
Analysts are attempting to quantify the damage. Reuters quoted an estimate by Credit Suisse which put economic losses at about ¥14 trillion (R1.2 trillion) to ¥15 trillion.
Peter Draper, a senior research fellow at the SA Institute of International Affairs, said the damage was centred on the north-eastern part of the country where industry was not heavily concentrated.
But the five problematic nuclear reactors – out of a total of 55 in Japan – were forcing rolling power cuts throughout the country, he said.
“A lot of the resources normally directed at manufacturing exports will be diverted to cleaning up and rebuilding,” Draper said.
Japan is South Africa’s fourth-largest trading partner with trade worth nearly R78 billion last year – behind China, Germany and the US.
While it is one of the main destinations for vehicle exports, it takes only 9 percent of the total vehicle exports, according to Norman Lambrecht, the executive manager at the National Association of Automobile Manufacturers
of SA. - Ethel Hazelhurst