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Market Commentary - April 8, 2011

Executive Summary

Putnam Investments - "Japan after the quake"

In the attached article, Jeffrey B. Sacknowitz, international equity portfolio manager at Putnam Investments considers the short-term economic impact of the recent natural disasters in Japan.

While he believes the long-term outlook for Japan is bright, as damage assessment continues and after-shocks continue to hit Japan's Northwest coast, the short-term economic implications of the disruption in manufacturing production and reduced consumer and business spending appear to be greater than originally thought.

More specifically, the author states the issues are:

  • The impact of the damage to the electrical power infrastructure is great – all six reactors at the Fukushima Daiichi nuclear plant will have to be scrapped and ~10% of Japan's electricity capacity will be out of commission.

  • The threat of radiation has sharply curtailed consumption of agricultural and marine products from the area, and foreign governments are increasingly banning imports from Japan.

  • Disruptions in power supply render many companies unable to function or produce critical components in the global technological supply chain.

  • Japan's just-in-time delivery system also provides little cushion for disruptions in production in industries such at auto assembly which reply heavily on manufacturing and transport.
In sum, he believes that a recovery will be underway by the summer. Generally, however, in region-specific disaster conditions such as Japan is currently experiencing, we often witness indiscriminant selling in that region, which may create opportunities for investment in companies whose operations or revenues are less affected by crisis events.

Prepared by:

Suehyun Kim, Investment Research Director
Research Department, Cetera Financial Group

The views are those of Suehyun Kim, Investment Research Director, Research Department, Cetera Financial Group, and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. All economic and performance information is historical and not indicative of future results. Investors cannot invest directly in indices. Please consult your financial advisor for more information.

While diversification may help reduce volatility and risk, it does not guarantee future performance.

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