Japan disaster has broad impact across asset classes

The ability to take risk off the table quickly and effectively has become a key focus in Asian risk management, as the reaction by investors to the tragedy in Japan shows. Despite profound mark to market losses in major asset classes and trend reversals in interest rates and foreign exchange, dealers say corporate hedgers will likely absorb recent market volatility.

In the week after Japan sustained its worst-ever earthquake, a devastating tsunami and an on-going nuclear crisis, Asian fixed-income markets responded with their own series of outlier events. One impact was that liquidity evaporated from core markets as dealers pulled prices from screens. Both fixed-income and equity sectors saw heavy selling. Market makers in long-dated Nikkei 225 forwards took substantial mark-to-market hits and equity structured product holders sustained paper losses