Business Blog Posts

Global electronics and autos seem to have been most affected by the turmoil, but in an illustration of how the ripples are spreading, global miner Rio Tinto (RIO.L) warned the disruptions posed a threat to its expansion plans.

More than 10 days after a 9.0 magnitude earthquake and 10-meter tsunami struck the northeast of Japan, manufacturers are struggling to get back up to speed as factories grapple with a lack of components, power cuts and damage to infrastructure.

Such is Japan's position in the global supply chain, that companies from Apple Inc (AAPL.O) to General Motors Co (GM.N) and Nokia (NOK1V.HE) are feeling the impact.

Electronics giant Sony said it was considering temporarily moving some production overseas after five more plants, mostly in central and southern Japan, were affected by parts shortages stemming from the disaster.

"If the shortage of parts and materials supplied to these plants continues, we will consider necessary measures, including a temporary shift of production overseas," the company that makes the Playstation games console said in a statement on Tuesday.

The plants make such products as digital and video cameras, televisions and microphones, the company said in a statement.

The disaster now affects 14 of Sony plants in Japan.

TECH CHAIN VULNERABLE

Japan's grip on the global electronics supply chain is causing particular concern.

The country produces around a fifth of the world's computer chips.

It exported 7.2 trillion yen ($91.3 billion) worth of electronic parts last year, research from Mirae Asset Securities shows.

"There are a huge number of little bits of the high-tech food chain which are done nowhere but in Japan," said Sam Perry, senior investment manager of Pictet Japanese Equity Selection Fund. "Nobody else has the quality or the consistency, and in some cases the technology to do it."

Japan dominates with the supply of LCD film and sealants for semiconductors, among other areas, Perry said.

"You simply can't do high-tech without Japan."

Regional stocks had just been picking up after a sell-off in recent weeks because of a combination of inflation, higher oil prices and frothy valuations, when the March 11 earthquake and tsunami in Japan dealt them another blow.

But the latest plunge has brought equity valuations within the region to average levels and markets particularly in North Asia are attractive, said Markus Rosgen, head of Asia ex-Japan strategy at Citigroup.

"From a technical perspective, Asia-ex Japan is very oversold. Much of the bad news is in the price of Asian equities and monetary policy is not hugely restrictive," said Rosgen, who predicts the MSCI ex Japan at 675 points by the end of the year, a gain of nearly 50 percent from current levels.

Investors may also have been reassured by reports of progress in repairs at a crippled Japanese nuclear power plant, and by comments by billionaire investor Warren Buffett that the recent steep drop in Japanese stocks presented a "buying opportunity".

The Nikkei .N225 plunged 10 percent last week as the nuclear crisis worsened, pulling shares in the rest of Asia down nearly 3 percent and weighing on markets in the United States and Europe, including riskier assets such as oil.

On Monday, the MSCI index of Asian shares outside of Japan .MIPAJ0000PUS was up nearly 1 percent though investors kept a wary eye on the battle by Japanese authorities to contain deadly radiation from crippled nuclear plants and a rising death toll following the earthquake and tsunami earlier this month.

For the quarter so far, Asian-ex Japan is down nearly 5 percent, underperforming its counterparts in Europe and the United States.

Japanese markets were closed on Monday for a holiday.

OIL UP

Brent oil futures jumped more than 2 percent at one point in early trade, topping $116 per barrel, after Western warplanes and missiles hit Libya at the weekend in a bid to force leader Muammar Gaddafi to cease fire on rebels and end attacks on civilians.

Unrest in Syria and Yemen over the weekend also kept traders on edge.

With a good chunk of Japan's nuclear power capacity likely knocked out for good, its reliance on fossil fuels such as oil and natural gas will increase, preventing oil prices from retreating sharply from current even if the Libyan conflict is resolved swiftly. So far this quarter, oil is up by more than a fifth.

Higher fuel prices will revive investors' concerns about inflation and the prospect for further interest rate increases, especially in emerging economies.

"I can see uncertainty and fear driving the price of oil higher in the short term," said Matthew Lewis, an analyst at CMC Markets in Sydney.