Reuters Money

4 ways to play Japan’s rebound

If you’re an investor, how should you regard the Japanese crisis? Should you be shorting Japanese stocks? Should you bet heavily on Korean companies to pick up the slack? What about American-based companies like Apple and Hewlett-Packard that are dependent upon the Japanese supply chain?

There are no clear-cut answers as supply chains are often as complex as the products whose parts depend on them. You need to look beyond Japan and the current headlines to explore a number of scenarios.

Japan will be hurt in the short-term. Although eventually Japanese engineers and crisis planners will get things moving again, in the interim the island nation is short of electricity. Unlike oil and other commodities, they can’t easily pipe in more electrons from a ship or plane. A weakened grid means lower or no productivity in factories and brownouts in office buildings. Parts are not being shipped out for everything from cellphones to autos.

Other than the radiation problem from the damaged reactors, lack of power is the most immediate threat to the industrial sector. If you’re really bearish on Japanese industry rebounding quickly, you can bet against their stocks by buying an inverse exchange-traded fund (ETF) like the ProShares Ultrashort MSCI Japan fund. The fund promises up to a 200-percent daily return on an index of Japanese stocks — if the benchmark drops. This is a high-risk way of “shorting” Japan and is only for disciplined traders.

Japan will rebound. I’d lean more toward this scenario, although the exact timing is anyone’s guess. Some companies will be impacted more than others. Unless you know how their supply chains work, it would be difficult to sort out the winners and losers. If you’re generally optimistic about the country, you can go “long” and buy an ETF such as the iShares MSCI Japan Index. Just keep in mind it will be tough going. As BMO Capital Markets notes: “Power disruptions could create shortages of technology and machinery, creating isolate pricing pressures.”

Asia is still a good bet. As it rebuilds, Japan will lean heavily on its neighbors China, South Korea, the Philippines, Vietnam and India. Will the Japanese do significant offshoring of manufacturing? They will certainly need to buy parts and commodities in their recovery phase. Overall, Asia is a good growth investment, anyway. The Vanguard MSCI Pacific ETF invests in nearly 500 stocks in Asia plus Australia and New Zealand. If you still want Asian stocks, but want to leave out Japan, consider the iShares Asia ex-Japan fund.

Invest in the whole world. If you just want to stop worrying about which country or countries will do well, expand your holdings to most of the world’s stock markets. It makes sense for any buy-and-hold portfolio and eliminates much of the guesswork. One of my favorite choices is the Vanguard Total World Stock ETF, which tracks almost 3,000 stocks  in the FTSE All-World Index.

7 safe ways to donate to Japan

The simplest way to help when disaster strikes is to open up you wallet — or even to send a text message. After the Haiti earthquake, for example, the American Red Cross received $32 million in text donations.

Here is a list of organizations that are collecting money — and even socks — for relief efforts in Japan. So far, GlobalGiving has raised more than $850,000 for its Japan Earthquake and Tsunami Relief Fund.

But with large sums of money sloshing around, scams are certain to follow. “Whether it is hurricanes in the South, the gulf oil spill or the earthquake in Haiti, the scammers lied in wait,” reports Mitch Lipka, WalletPop‘s former consumer reporter who has started contributing to dealnews. He offers seven tips to avoid getting scammed.

Lipka’s advice:

• Be wary of people or groups making urgent appeals for money whether in person, by phone mail, email, websites or social networking
• If a telemarketer calls, ask the name of the charity if it’s not provided right away and then ask what percentage of your donation will go to the charity.
• Follow-up on that, if you’re still interested, by verifying the charity authorized that solicitation.
• Don’t feel pressured to give out your credit card or bank account numbers; wait until you’ve decided that the charity is legitimate and you’re comfortable.
• Be sure to get a receipt and record that your donation is tax deductible.
• Don’t give cash and don’t write a check in the name of the solicitor rather than the charity.
• For those who want to leverage their contributions to a legitimate organization, look to double your money with matching donations. Dealnews, for one, will match contributions to the American Red Cross up to a total of $25,000.

And before you dig into your pocket, read this provocative piece from Felix Salmon. He makes a good case for donating to organizations like Doctors Without Borders, “which don’t jump on natural disasters and use them as opportunistic marketing devices.” His advice? Donate to organizations that use the funds in an unrestricted way.

Japan disaster: How you can help

Relief organizations are scrambling to provide aid to victims of Japan’s massive earthquake and tsunami. If you know of any relief efforts, please let us know, and we will update this list.

American Red Cross: The American Red Cross is collecting text donations, according to Renee Kelly, an American Red Cross spokeswoman. To contribute, send a text with REDCROSS to 90999 and $10 will be donated to the relief efforts. (A similar initiative was hugely successful after the Haiti earthquake, raising more than $32 million.)

Shelterbox: Author Maureen Johnson has launched an online fundraiser for Shelterbox, collecting money for earthquake and tsunami relief in Japan. Johnson led a similar fundraiser for earthquake victims in New Zealand, raising more than $15,000. According to the organization’s website, Shelterbox is an organization that goes into areas of the world affected by disaster with large green boxes that contain shelters and the materials needed for people to restart their lives on some level. The boxes always include a top-quality tent, and they usually include stoves, blankets, water purification systems, and tools. This is true, life-saving stuff, hand-delivered by volunteers trained in survival techniques.

Save the Children: Save the Children says it is mobilizing global resources to respond to the needs of children and families affected by the earthquake and its aftermath. The organization’s website reports that an international emergency team has been dispatched to assist staff in Japan.

The humanitarian agency, which is based on Westport, Connecticut, says it has been operating in Japan for 25 years along with other Pacific nations impacted by tsunamis. Donors may make charitable contributions to the group’s Children’s Emergency Fund.

GlobalGiving: This Washington, D.C.-based group has launched the Japan Earthquake and Tsunami Relief Fund. According to the organization’s website, it will disburse donations to groups providing relief and emergency services to victims of the earthquake and tsunami. GlobalGiving is working with International Medical Corps, Save the Children, and other organizations.

Update: By 1 a.m. EDT on March 13, the group had collected more than $300,000.

Japan Fund: Market impact of earthquake should be limited

In response to the March 11 disaster in Japan, managers of the Japan Equity Fund sent the following email to clients and members of the press. (The managers of the closed-end portfolio stayed  in their offices because Tokyo’s subway system shut down.)

Comments from Soichiro Monji, chief market strategist at Daiwa SBI, which manages the portfolio:

“The earthquake today attacked a broad area of the eastern part of Japan. However, we do not consider the impact of this earthquake on the Japanese economy to be too serious because the damage is concentrated in the northeastern part of the country in the Tohoku prefecture and Tohoku’s economy only accounts for around six percent of nominal GDP for all of Japan.

Meanwhile, we experienced the quake here in Tokyo, too, but the damage seems to be minimal. Although the ground shocks were bigger than any that I have experienced before, we have fortunately not seen any collapse of buildings, roads or bridges.

Looking at the Japanese stock market, the negative effects of this earthquake should be limited, as the overall economic damage caused is expected to be contained. While the Nikkei 225 declined almost 180 points on the back of today’s earthquake, we expect it to regain any lost ground early next week.

Looking at sectors and stocks, insurance companies may be the most negatively affected by the earthquake because of anticipated payments of insurance claims. In addition, banks and utilities whose businesses have higher exposure to the Tohoku prefecture might experience a sell off early next week as well.”

How to invest for falling prices

Okay, worrywarts, you have official permission to be concerned about deflation.

This economically trying condition means that prices on goods and services may continue to fall (from 2008 meltdown levels), economic growth will be stagnant and savings yields will stink.

If this trend continues, it’s not bullish news for employment and the general economy, duly noted by the Federal Reserve last week. Yet it’s not the worst development for your portfolio, which is easily shored up.

Not having some measure of inflation means corporations that sell things or provide services typically can’t raise prices, create jobs or benefit from growing consumer demand. That also conjures up the scary image of Japan, which has been in deflationary mode for more than a decade and has propped up its so-called “zombie banks.”

The first tenant of deflation is that cash — as a profitable after-tax investment at least — is not king. Money-market funds, certificates of deposit and other savings vehicles will continue to offer paltry yields. They are still adequate places to harbor your money for emergencies and monthly bills, but that’s about it.

To boost your returns, you’ll need to look elsewhere and realize that you will have to take on more risk — if you can afford it.

Companies with cash in their treasuries (and not hobbled by debt) are good places to start. Not only are these companies generally well run, they are mature enterprises that are not likely to cancel dividends any time soon. (Well, BP was a surprise, wasn’t it?)