Received news on Friday that a huge magnitude 8.9 earthquake has just struck the pacific near Japan and a tsunami has followed after. Asian markets reacted immediately, as a knee jerk reaction since there will definitely be worries on whether other areas in Asia besides just Japan will be hit by a tsunami. The memories of the last tsunami in Asia that killed thousands is still fresh. The economic damage caused in Japan would have also caused the Japan stock market to plunge on Friday.
Having said all this, from a markets points of view, the reaction will likely be limited to just one day or a few days. While there will undoubtedly be widespread damage in Japan, and possibly other areas, along with many casualties, natural disasters usually do not have the kind of impact that an economic one would have. There is actual physical damage, and people die in natural disasters, unlike a financial crisis or an economic recession, but while markets may crash 30% or more during an economic slump, we are very unlikely to see markets crash like that just from a big earth quake, tsunami, or other natural disaster.
The human tragedy is often far greater for those immediately impacted by a natural disaster as compared to what happens during an economic recession, but the perverse thing is that the overall market impact is usually muted and short term. In fact, the rebuilding after the disaster usually spurs new economic activity, and that actually helps the sectors involved in the rebuilding after the disaster.
The human spirit is a very resilient one, and that is one thing that doesn’t change. No matter how hard a man made or natural disaster strikes us, we will eventually recover from it. But despite that, the human tragedies that happen during such times are always heat wrenching, and those personally affected will bear the memories for life.
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