Great value on offer as appeal for calm triggers panic attack

The sight of Japanese prime minister Naoto Kan dressed in his blue-grey emergency overalls and appealing for calm triggered a full-blown panic attack in financial markets yesterday.

Investors concluded that if the prime minister was asking people not to panic, then the radiation leak at the damaged Fukushima nuclear plant must be more serious than they thought. With no further prompting needed, they ran howling for the exit, dumping Japanese shares as fast as they could.

By early afternoon, Japan's main Topix stock index had plunged 14 per cent - a fall which pushed the market down to a massive 21 per cent below its level immediately before last Friday's earthquake (please see the first chart below).

The selling was largely indiscriminate. It made sense for investors to unload their holdings of Tepco, operator of the Fukushima power plant, which duly fell by 25 per cent.

Dropping the shares of insurers was also sensible. And you can make a case for selling the shares of manufacturing companies like Toyota - down 7 per cent yesterday - whose operations will be affected if Japan suffers a prolonged period of rolling power cuts.

But some of the selling made little sense at all. It was a mark of the depth of yesterday's panic that traders and investors also marked down the stocks of companies likely to benefit handsomely when Japan embarks on its reconstruction programme.