Sunday, March 13, 2011

Nikkei set to fall below 10,000 due to Japan quake and tsunami devastation

Japanese shares look set to tumble this week while government bonds and the yen are expected to gain, although market players are still trying to gauge the impact of the country's worst earthquake in modern history.

Japan's Nikkei average .N225 may tumble below 10,000 on Monday as investors will likely shift to safer assets following after Friday's massive earthquake and tsunami, with the long-term impact uncertain as nuclear disaster looms.

The Nikkei futures last traded in Chicago on Friday at 10,005, and initially investors said the slide might be limited as major cities and manufacturing sites were mostly intact.

But investors sentiment soured by Sunday night, with Japan scrambling to avert potentially disastrous meltdowns at two nuclear reactors and the extent of the total damage unclear.

Market players also said a long-term rebound for stocks may take much longer than after the 1995 Kobe earthquake. They noted that holdings by foreigners, who deal heavily in large-cap stocks affected by the quake, account for more than 60 percent of the total market. In 1995, they accounted for 29 percent.

"Initially all sectors will be under selling pressure. The Nikkei can drop about 20 percent from a recent high of around 10,900. It could fall below 9,000 in the near term," said Masaru Hamasaki, senior strategist at Toyota Asset Management. (read more)