1. March 15, 2011
Comments from GLC on the Japanese
Earthquake and Current Market Conditions
We are all watching with heavy hearts as the impact of Japan’s natural disaster continues to play out in front of our
eyes. While the immediate human tragedy is horrific enough, capital markets, already unsettled by geopolitical
events unfolding in North Africa and the Middle East, are facing considerable uncertainty and anxiety.
WHAT WE’VE SEEN
As with most large scale natural disasters or major geopolitical shocks, capital markets are responding with a move
to more defensive positions, selling off riskier assets. So far we have seen:
 A sharp sell-off in the Japanese stock market (Nikkei decline of over 15 per cent over past two days)
 A moderate pullback in global stock markets
 A shift toward “safe haven” assets
o U.S. Treasury bond yields down (bond prices up)
o Gold price up
 Commodity prices down
o Oil off approximately $4 per barrel (but remains up so far this year)
 Stocks linked to property and casualty insurers, the Japanese capital markets and the nuclear industry (e.g.
GE, uranium stocks) have been particularly hard hit as would be expected under the circumstances.
WHAT WE EXPECT - ECONOMY
The Japanese economy will take a hit this year due to severe disruptions in supply and infrastructure, but is
expected to rebound quickly as rebuilding activity and support by the Bank of Japan provide a boost to economic
growth.
We expect the impact on the global economy will be modest. Japan represents approximately 8.7 per cent of
global gross domestic product (GDP) as of 2010 (according to the International Monetary Fund (IMF)). While
production and supply disruptions are likely to be felt globally, much of that production could be sourced elsewhere,
especially due to excess capacity in North America. For example, even if the impact of the earthquake knocked 1.5
per cent off Japanese GDP (a significant amount), the effect on the global economy would be less than 0.2 per
cent.
The key economic impact will likely be felt within specific sectors and industries, rather than at the global economic
level. As with other times in which economies experience turmoil, this will hurt certain industries, while creating
opportunities for others.
WHAT WE EXPECT – CAPITAL MARKETS
If it’s one thing investors hate, it is uncertainty. As following almost all natural disasters, the effect on capital markets
is usually short-lived. In this case, the disaster is still playing out, while investors were already feeling a bit unsettled
by the situation in the Middle East and the emerging global economic recovery. Negative sentiment and investor
concern might take a bit longer to ease.
In general, we expect to see the following:
 Commodities prices: While the demand for oil might be lower over the short term, potential supply risks in
the Middle East have the opposite affect on oil prices. As reconstruction gets underway, we would expect
an increase in demand for a wide range of raw materials.
GLC Asset Management Group 1 of 2 March 15, 2011
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2. March 15, 2011
 Stock markets: Much of the sell-off so far has been sentiment based, as opposed to reflecting the actual
fundamental impact on the actual companies. As the unknowns reveal themselves investor sentiment will
become more positive and we expect stock markets to regain strength. The Canadian stock market in
particular should fare well, as it is not highly linked to the Japanese economy and we may see investors
rotating out of their Japanese equity investment in favour of other jurisdictions, such as Canada and the
U.S.
 Bond market: The bond market has been a beneficiary of the flight-to-safety trade so far. We expect yields
to remain dampened from their pre-earthquake levels as there is likely to be some residual investor
nervousness and expectations for a slight reduction in economic growth.
WHAT WE ARE DOING AT GLC
Each of the GLC investment teams (GWLIM, London Capital and Laketon) have reviewed their strategies in light of
recent events – as they always do – to take advantage of any opportunities arising from the moves in the capital
markets. It is our view that markets typically overreact in these scenarios. Many investors react in a knee-jerk
fashion to these types of events and flee the markets. Our portfolio managers have focused instead on
understanding the nature of the situation, cutting through the noise and looking for shifts in investment strategy that
can position the portfolios to take advantage of short-term uncertainty for long-term opportunity. During periods of
market volatility, when it can be difficult to remove human emotion and personal bias from decision making, the
merits of professional portfolio management shine through.
WHAT SHOULD I DO?
As long-term investors, your best bet is to stick with your long-term investment plan. No one knows how the
situation in Japan will play out; however, situations like these are always a reminder to stay focused on your long-
term investment goals. They also remind us of the importance of diversification. A well-diversified portfolio is unlikely
to be heavily weighted in one or two industries and, therefore, diversification can provide the added benefit of
softening the effects of short-term volatility and sharp market pull-backs. While the headlines are scary, the net
impact on a well-diversified portfolio has been modest and within a couple of weeks, may even be long-erased as
the markets turn their attention back to the broader global economic outlook.
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The views expressed in this commentary are those of GLC Asset Management Group Ltd. (GLC) as at the date of publication and are subject to
change without notice. This commentary is presented only as a general source of information and is not intended as a solicitation to buy or sell
specific investments, nor is it intended to provide tax or legal advice. Prospective investors should review the offering documents relating to any
investment carefully before making an investment decision and should ask their advisor for advice based on their specific circumstances.
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