Quake aftermath could weigh on Japanese ADRs

The rebuilding effort following Japan's devastating earthquake could help stocks in the short-term, although the costs could exacerbate the country's already troubled budget situation. The quake triggered a 10-meter tsunami that killed hundreds of people. US traded shares of Japanese companies were mostly lower in response as bearish bets increased.
"We'll see a short-term hit to shares but rebuilding will start in the following months and that tends to be stimulative," said Scott Brown, senior vice president at Raymond James & Associates in St. Petersburg, Florida. "But there are concerns about the overall economy there; they have a government debt that's right around 200 percent of GDP." The iShares MSCI Japan Index sank 1.5 percent to $10.83.
In a bearish sign, options activity was dominated by volume in puts, contracts that give the buyer the right to sell at a given date at a certain price. Put volume in the fund was around 26,000 contracts around 2:30 pm, more than four times its average daily volume. Total contracts numbered 33,000.
Japanese stock futures sank 3.2 percent while the ProShares UltraShort MSCI Japan, which corresponds to two times the inverse of the MSCI Japan Index's daily performance, rose 4.2 percent on its highest-ever volume. Japan's ADRs broadly dropped. Electronics giant Sony Corp dropped 2.2 percent to $33.49 while automaker Toyota Motor was off 2 percent to $85.74 and Mitsubishi UFJ Financial Group Inc lost 3.1 percent to $5.08. All three companies traded on more than twice their 10-day daily average volume.
"Clearly Monday's trading will be volatile and to the downside, but the impact will differ sector by sector," said Robert Lutts, president of Cabot Money Management in Salem, Massachusetts. "For companies that can do infrastructure repair work, there will be a lot of opportunities to gain business."
The BNY Mellon index of Japanese American Depository Receipts dropped 2.3 percent while the BNY Mellon index of leading ADRs rose 0.2 percent. "The quake appears to have less impact from a global perspective and that's how global markets are dealing with it," Lutts said. "We're not too concerned about a spillover impacting our Asian holdings, which are concentrated in China." More widespread downside was limited as the disaster sent oil prices lower, with US April crude futures dropping 1.6 percent and Brent crude down 1 percent on the expectation the quake could lower Japanese demand.