After the quake: Our view on sector impact - Credit Suisse

Information Technology
Japanese semiconductor manufacturers account for approximately 20% of the world's production volume, and are the major suppliers in the global electronics supply chain with significant exposure to DRAM chips and NAND flash chips. We notice the average selling prices of NAND flash has increased 13% since 11 March on market fears about potential supply shortage in the short-term, which should weigh on investor sentiment for the wireless device providers, such as Qualcomm (QCOM US, BUY), Apple (AAPL US, BUY) and Nokia (NOK1V FH, HOLD).

We notice the majority of Japanese semiconductor manufacturing plants are located in the central and western Japan, which should not be affected by the disastrous earthquake on the northeastern coast. These plants could sustain its production level after resuming the normal power supply. In addition, Korean manufacturers, such as Samsung Electronics (005930 KS / SMSN LI, BUY), could expand their production volumes given any supply disruption in the industry. Therefore, we believe the earthquake should have limited long-term impact to the consumer electronics sector.

Natural Gas, Coal and Fuel Oil
Our commodity research team expects positive price impact for natural gas, coal and fuel oil in the near term, as these commodities are used to compensate for the loss of nuclear power production. In the longer term, Japan will increasingly rely on oil, gas and coal and there should be a positive long-term effect on prices. BG Group (BG/ LN, BUY) as well as the Australian-based energy companies Santos (STO AT, BUY) and Origin Energy (ORG AT, BUY) are major players in the LNG business. We also have BUY rating on China Coal (1898 HK, BUY).

Alternative Energy
We believe the public sector will increasingly favor alternative energy, such as hydropower, wind and solar energy, given the rising awareness about nuclear safety. We advise investors wishing to gain exposure to this theme and seeking a well diversified portfolio to consider products, such as an index tracker on the Credit Suisse Global Alternative Energy Index (CSAEPXUS Index). On a company level, we have BUY ratings on Siemens (SIE GY, BUY) and First Solar (FSLR US, BUY). Siemens has established a leading position in the wind and gas turbine segment, while First Solar is the market leader in the manufacture of solar modules.

Insurance
We expect the impact on European primary insurers to be moderate, given their limited exposure to the Japanese market and plans are largely covered by reinsurance programs. Consequently, reinsurers are affected the most by this disaster, especially the motor and marine insurance lines and in terms of business interruptions. Reinsurers sustained substantial losses after the earthquake in New Zealand and the flooding in Australia, and their excess capital has significantly declined. The earthquake in Japan will further impact the reinsurance industry, and we reiterate a cautious view on the sector outlook. We maintain our SELL rating on Munich Re (MUV2 GY, SELL). Swiss Re is on the restricted list.

Telecommunications equipment
We believe the damage of mobile base stations and submarine communications cable from the earthquake should have a slight positive impact to the telecommunications equipment providers, such as Siemens (SIE GY, BUY), Ericsson (ERICB SS, BUY) and Alcatel Lucent (ALU FP, HOLD). We estimate the replacement sales for base stations and submarine cable could be approximately USD 70–100 m and USD 200m, respectively.



Pharmaceuticals
Iodine is used in destroying cancerous cells of the thyroid. We note the sales from iodine tablet accounts for an immaterial proportion of major pharmaceutical companies in the US and Europe. ThyroSafe is the only FDA-approved potassium iodide tablet, which is produced by the private company, Recipharm.