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FYI in light of the recent EQ in Japan, it may be worthwhile to think about companies that will benefit/suffer. I have jotted down some high level thoughts, but it would be worthwhile thinking about these issues more thoroughly.
The direct impact on SL trade will be small (2% of exports), but big links through aid (1/3 of total aid is from Japan).
The key consequences of the Japanese EQ will be:
1) Heightened short term risk aversion
2) Possible reduction in demand for commodities in the near term
3) Increased lags for high-tech products
4) Increased demand for building products in the medium term
5) Possible impact on Japanese aid to Sri Lanka
6) Longer term increase in demand for non-nuclear energy sources
Implications:
Heightened short term risk aversion
· This will likely accelerate market sell-off in Asia, including Colombo. It is a good opportunity to help foreign investors exit their positions and funnel these into local institutions, who will see emerging value and less affected by global sentiments.
· The contagious sell-off in global securities is the perfect time to buy global (value) equity exposures. We may not be set up to do this yet, but makes sense for HIL.
· It would be a good time to highlight low beta/utility type stocks to investors.
Possible reduction in demand for commodities in the near term
· Some relief for cable companies (copper prices will come down in the near term, we should encourage them to hedge, put in place forward orders)
· Potential relief on oil prices too, but this will remain largely linked to revolutionary forces in the ME.
Increased lags for high-tech products
· Less of an issue for CSE listed companies
· HIL may wish to look into its tech exposures, as margins will be squeezed by rising input costs (chips, LCD, etc)
· Some pass through to prices for consumer electronics in SL, but I expect that to be offset by supplies from China, Korea, etc.
Increased demand for building products in the medium term
· Probably not a big direct plus for SL companies, as not many export to Japan
· But a positive for TKYO (cement manufacturer), Cables (ACL, SIRA) as import parity will favour them (global prices are likely to rise for steel, copper, cement, forestry when the reconstruction begins in Japan)
Possible impact on Japanese aid to Sri Lanka
· I understand from media that: “Japan is the single largest donor to Sri Lanka providing about two-thirds of the total donor contribution”
· This could have serious implications for economic growth in SL, particularly in areas that aid would have helped (infrastructure, north & east, etc).
Longer term increase in demand for non-nuclear energy sources
· I expect nuclear to be wound down pretty quickly over the coming years
· This means advanced economies will be adding to demand for renewable and thermal (gas/coal/diesel) electricity generation, which could increase costs for fuel and generation capacity.
Courtesy from Principal Economist from Heraymila Securities
The direct impact on SL trade will be small (2% of exports), but big links through aid (1/3 of total aid is from Japan).
The key consequences of the Japanese EQ will be:
1) Heightened short term risk aversion
2) Possible reduction in demand for commodities in the near term
3) Increased lags for high-tech products
4) Increased demand for building products in the medium term
5) Possible impact on Japanese aid to Sri Lanka
6) Longer term increase in demand for non-nuclear energy sources
Implications:
Heightened short term risk aversion
· This will likely accelerate market sell-off in Asia, including Colombo. It is a good opportunity to help foreign investors exit their positions and funnel these into local institutions, who will see emerging value and less affected by global sentiments.
· The contagious sell-off in global securities is the perfect time to buy global (value) equity exposures. We may not be set up to do this yet, but makes sense for HIL.
· It would be a good time to highlight low beta/utility type stocks to investors.
Possible reduction in demand for commodities in the near term
· Some relief for cable companies (copper prices will come down in the near term, we should encourage them to hedge, put in place forward orders)
· Potential relief on oil prices too, but this will remain largely linked to revolutionary forces in the ME.
Increased lags for high-tech products
· Less of an issue for CSE listed companies
· HIL may wish to look into its tech exposures, as margins will be squeezed by rising input costs (chips, LCD, etc)
· Some pass through to prices for consumer electronics in SL, but I expect that to be offset by supplies from China, Korea, etc.
Increased demand for building products in the medium term
· Probably not a big direct plus for SL companies, as not many export to Japan
· But a positive for TKYO (cement manufacturer), Cables (ACL, SIRA) as import parity will favour them (global prices are likely to rise for steel, copper, cement, forestry when the reconstruction begins in Japan)
Possible impact on Japanese aid to Sri Lanka
· I understand from media that: “Japan is the single largest donor to Sri Lanka providing about two-thirds of the total donor contribution”
· This could have serious implications for economic growth in SL, particularly in areas that aid would have helped (infrastructure, north & east, etc).
Longer term increase in demand for non-nuclear energy sources
· I expect nuclear to be wound down pretty quickly over the coming years
· This means advanced economies will be adding to demand for renewable and thermal (gas/coal/diesel) electricity generation, which could increase costs for fuel and generation capacity.
Courtesy from Principal Economist from Heraymila Securities
