The catastrophe in Japan rocked world markets in the last week. On a human and economic scale, this quake’s impact is likely to be much worse than what Hurricane Katrina did to New Orleans.
One thing New Orleans didn’t have to worry over was a nuclear power plant getting damaged. Several of them in Japan are now in various stages of meltdown.
The impact on ETFs was immediate — bearish for some and bullish for others. Today I’ll tell you what happened and what it means for you.
Nuclear Energy Sector: RIP?
With oil prices above $100 and heading higher, you might think the nuclear energy industry would have good prospects for growth. And you would have been right, a couple of weeks ago. But not anymore.
As Martin Weiss pointed out earlier this week, the Japanese reactor damage is far worse for the industry than Three Mile Island or Chernobyl. Those earlier incidents could plausibly be blamed on outdated design and lax oversight. Not so in Japan, where nuclear power plants are highly regulated with a stellar safety record.
That reputation is now in ruins, and it is hitting the nuclear power industry worldwide. Japan was rocked by further earthquakes and aftershocks on Tuesday, causing more havoc with their nuclear plants. When trading for U.S. markets closed yesterday, Global X Uranium ETF (NYSE:URA) had dropped 28.8 percent from Friday’s close. Volume was heavy, too.
URA took the biggest hit since it is so closely tied to world uranium prices, but other nuclear-focused ETFs were way down as well. By Wednesday’s close …
- Market Vectors Uranium & Nuclear Energy (NYSE:NLR) had fallen 58.3 percent.
- PowerShares Global Nuclear Energy (NYSE:PKN) was off 15.7 percent.
- iShares S&P Global Nuclear Energy (NYSE:NUCL) had declined 13.5 percent.
Now I won’t be surprised if some of the selling was overdone in a momentary panic. We may see a strong bounce in some of these ETFs soon. That won’t help their long-term prospects, though. Everywhere in the world, plans for new reactors are being shelved or delayed. Older plants could face early retirement.
It’s happening fast, too …
The rubble in Japan was still fresh when German Chancellor Angela Merkel announced a three-month inquiry into the safety of her nation’s 17 nuclear plants. Merkel had previously signed on to a plan to extend the life of those plants by an average of 12 years. But before the ink was dry, Germany took further steps to shut down seven of its oldest reactors.
This is just the beginning …
Fast-growing China and India have long planned to use nuclear power to provide much of their energy needs. They may yet do so — but not until the Japanese meltdowns fade from memory. In other words: Not anytime soon.
The ironic part is that most of the people who fear nuclear power have very little interest in reducing their own energy usage. Moreover, as we’ve seen numerous times the oil, gas and coal industries create plenty of danger to both people and environment, too.
So what’s the alternative?
Wind and Solar ETFs Shine!
I wrote about this very subject last fall in my Money and Markets column Can Green Energy ETFs Put Green In Your Wallet? The answer to that question is definitely “yes” in the aftermath of Japan’s quake. Take a look at how some ETFs specializing in solar and wind energy have performed in early trading this week, based on Wednesday’s close:
- Market Vectors Solar Energy (NYSE:KWT) soared 10 percent.
- Guggenheim Solar Energy (NYSE:TAN) rose 10.9 percent.
- PowerShares Global Wind Energy (NYSE:PWND) climbed 2.6 percent.
- First Trust Global Wind Energy (NYSE:FAN) gained 2.3 percent.
On a short-term basis, the two solar funds (KWT and TAN) seem to have more momentum than the wind-focused ETFs. Here, too, we may be seeing a bit of overreaction.
Therefore, I wouldn’t jump into any of these ETFs right now. If this is a major trend change, it will unfold over the next week or two. Watch carefully!
Money and Markets (MaM) is published by Weiss Research, Inc. and written by Martin D. Weiss along with Nilus Mattive, Claus Vogt, Ron Rowland, Michael Larson and Bryan Rich. To avoid conflicts of interest, Weiss Research and its staff do not hold positions in companies recommended in MaM, nor do we accept any compensation for such recommendations. The comments, graphs, forecasts, and indices published in MaM are based upon data whose accuracy is deemed reliable but not guaranteed. Performance returns cited are derived from our best estimates but must be considered hypothetical in as much as we do not track the actual prices investors pay or receive. Regular contributors and staff include Andrea Baumwald, John Burke, Marci Campbell, Selene Ceballo, Amber Dakar, Maryellen Murphy, Jennifer Newman-Amos, Adam Shafer, Julie Trudeau, Jill Umiker, Leslie Underwood and Michelle Zausnig.
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