The immediate impact of the tsunami and prospect of nuclear meltdown being felt in the Japan ETFs iShares MSCI Japan Index (EWJ) is that it has traded down over 10% as of this writing. EWJ is the largest Japan based ETF (6.18Billion Net Assets) whose largest components include industrials, consumer cyclicals, materials and technology. The last time that EWJ has traded below this level was in the first quarter of 2009 at the height of the financial crisis, where it was almost 30% lower than it was now.
Note that while this is a sudden sharp shock to Japans industrial base it is not clear as to what impact this will have to Japans GDP as it is unclear what direction the ongoing nuclear crisis is going.
Note that the EWJ 10 strike puts maturing in Jan 20 2011 puts have almost doubled in value in two days. There have also been large buyers of the 9 strike puts maturing in Jan 20 2011 both have seen a sharp spikes in volume. For an investor looking to go long Japan at a lower price selling puts is a way of minimizing downside risk since the investor only loses when the ETF value goes below (9-premium collected by put seller). Note that during the 1995 Kobe earthquake the Nikkei dropped 25% over a five and a half month period and then recovered by the end of 1995.
Unsurprisingly the much less liquid Van Eck Market Vectors Nuclear and Uraniam ETF (NLR) down over 13.5%, has taken the biggest hit as governments around the world re-evaluate their nuclear programs going forward. No doubt some governments will look to upgrade their existing facilities noting the size of the earthquake in Japan, however as always occurs in a crisis of this nature this will put the building of new nuclear plants on hold for several years in many countries.
