The Japanese stock market is pricing in the worst case scenario of a full blown nuclear meltdown at Fukushima and that no longer makes any sense, according to Societe Generale analysts Todd Martin and Claudia Panseri.
They argue that the market is pricing in a scenario that no longer seems likely:
TPX is now trading on 0.99x 2011E P/BV, or 18% above the 20-year low of 0.84x P/BV seen in March 2009, when global financial system dislocation was priced in. A full blown nuclear meltdown disaster scenario now appears less likely with the reactor cooling attempts making progress.
Martin and Panseri now declare a bottom in Japan, and they revise their 12 month target for the Nikkei to 10,800, which is a huge difference from the 9,608 the Nikkei stands at right now (17% gain from Friday’s 9207).
That doesn’t mean we’re going to see an immediate earnings recovery in Japan, however. If the Kobe quake is anything to go by, earnings will lag. And it could take longer this time around, as Martin and Panseri suggest that with electricity disruptions from the Fukushima disaster, output could be cut for some time.
Photo: Societe Generale