Japanese stocks plunged yesterday, logging the worst two-day losing streak since 1987 on fears of more aftershocks and further repercussions from damaged nuclear reactors. Globally, investors engaged in a massive sell-off sending the benchmark Dow Jones Industrial Average (DJIA) below the psychologically important 12,000-mark with no sector being spared.

It's undoubtedly challenging for investors to be optimistic as they evaluate the impact that the Japanese crisis will have on the global economic recovery. Consequently, many have been quick to dump their holdings at a loss on sheer impulse. However, they should bear in mind the old adage - "out of adversity comes opportunity" and use the current bull market "breather" as an opportunity to increase their existing holdings and/or create new positions. But as always, a focus on the fundamentals is critical and investors should "look before they leap".

Taking a look at the Japanese equities market - the blue chip Nikkei Stock Average plunged almost 11 per cent yesterday while the broader TOPIX Index fell 16.3 per cent. Shares of automotive giants such as Toyota Motor Corp (NYSE: TM), Honda Motor Co Ltd (NYSE: HMC) and Nissan Motor Co Ltd opened lower after announcing that they would suspend production at their Japanese plants. It remains to be seen how long it will take to get production up and running again in Japan's biggest industry.

While TM, Japan's biggest Company and the world's largest automaker, will no doubt experience "tremors" over the next few months, many analysts expect that the current setback will have little impact on its recently announced 2015 "global vision" plan. As part of this initiative, TM will change its global vision and business practices in an attempt to successfully turnaround, following massive recalls and boost sales to 10mm units per year.

Other Japanese stocks hit hard were those in the technology industry. In particular, the impact of the disaster is expected to lead to shortages and price increases of certain components for tech products. And while actual shortages are yet to occur, the crisis is already affecting component pricing. For example, the price of NAND flash components has already climbed as much as 10% since last week. Additionally, some of the bigger players including Panasonic Corp (NYSE: PC), Sony Corp (NYSE: SNE) and Toshiba Corp (TYO: 6502) were each down significantly yesterday.

US-based Companies such as The Boeing Co (NYSE: BA) which relies heavily on suppliers from the world's third-biggest economy also saw their shares slip. BA cautioned on Monday that if its Japanese suppliers are disrupted by more than several weeks, it could face new production problems for its already long-delayed 787 Dreamliner. BA had been riding high in recent weeks, having won two multibillion dollar contracts, to supply Chinese airlines with 43 wide-body jets, a deal valued at US$10 billion and the US Air Force with 179 aerial-refueling tankers in a US $30 billion contract. Yesterday, the stock fell below US$69.00, retreating from a HI of US$73.04 less than a month ago.

The Energy Sector Takes the Hardest Hit

However, energy and utility stocks were the biggest decliners amid concerns that the earthquake and tsunami would slow industrial demand. Brent crude oil has begun to retreat from highs of US$116 as Japanese refinery shutdowns reduce the demand for the commodity. Copper for delivery in three months fell 1.5 per cent to US$9,054 a metric ton on the London Metal Exchange, leading a decline in industrial metals. Silver for immediate delivery retreated 4.2 per cent to US$34.44 an ounce, dropping for the first time in three days. Prices of platinum, palladium and gold also fell.

Additionally, fears are emerging that the Japan crisis will hurt the global nuclear energy industry, derail plans to build dozens of new power plants and prevent a surge in demand for uranium to fuel them. Not surprisingly, the Market Vectors Nuclear Energy Exchange Traded Fund (NYSE: NLR) slumped five per cent on Tuesday after a 12 per cent decline on Monday while the Global X Uranium ETF (NYSE: URA) sank 12 per cent.

General Electric Co (NYSE: GE), which is heavily invested in the nuclear power business, opened down more than 5 per cent on Tuesday as the second hydrogen explosion in three days rocked the Fukushima Daiichi nuclear power plant on Monday. This pullback represents a good investing opportunity as GE continues to be a fundamentally sound Company. GE is the largest conglomerate in the US, offering a variety of products and services in almost every industry worldwide. Additionally, the Company has now turned its spotlight on India and is in talks to sell reactors to the Indian market and invest up to US$200 million through its Indian subsidiary over the next five years.

On that note, savvy investors should take advantage of retreating prices, focusing on oil and natural gas related investments as these will be needed to replace lost nuclear energy production in Japan. For example, alternative energy stocks and ETFs present good opportunities while Uranium stocks are plunging. The Market Vectors Solar Energy ETF (NYSE: KWT) is one such example, the ETF was up over five per cent yesterday after rising 7.2 per cent on the previous day.

In addition, many Companies such as Caterpillar Inc (NYSE: CAT), the world's biggest construction-equipment maker, stand to benefit as Japan rebuilds. CAT may see sales of excavators and wheel loaders rise as Japan reconstructs buildings that crumbled during the earthquake. During trading yesterday, the stock was down 2.06 per cent to US$100.00, retreating from its 52-week HI of US$105.86 which was hit on February 18, 2011.

While the full effect of Japan's devastation on the global economy remains to be seen, one thing is certain - this too shall pass. In the interim, investors should get off the sidelines and get into the game while the opportunity still exists.

Kimberly Thelwell is the Manager, Research & Analyst, Corporate Finance & Advisory Services at Stocks & Securities Ltd (SSL). You may contact her at kthelwell@sslinvest.com.

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