Either of these events could have prompted an extended period of market weakness in their own right but they haven’t. And when you add inflationary fears in Asia to the mix, it may, to some, seem even more baffling that most equity markets around the world have made new post-Lehman highs this year.
However, from our perspective, it is not that surprising, as the strength and momentum of the economic, social, and market forces in Asia far outweigh the negative effects of these two black swans, while inflation in most countries could abate in the second half of the year, albeit leaving a slightly higher level than we have been used to for the last decade.
Natural disasters, such as the Sendai earthquake, are by definition local events that sometimes have wider-reaching effects. More often than not, however, these wider effects tend to be much milder than originally expected.
While the Sendai earthquake was tragic, the implications for Asia ex-Japan companies and economies are likely to be fairly limited and specific, as the V-shaped recovery in share prices after the original panic has suggested.
The Bank of Japan acted quickly by flooding the markets with $200bn of liquidity, supplementing the already brimming global liquidity conditions that "Helicopter" Ben Bernanke’s monetary experiment has induced.
The question is: Could this be the basis upon which an Asian bull market is built? Well, after the Kobe earthquake in 1995, initial share price weakness across the Asia region soon gave way to rampant markets that peaked a full two years later with the Asian crisis.
The market implications of the Arab Spring are more difficult to analyse because of the diversity of issues that have caused it, and that it evokes.
However, one common thread that can be examined is inflation. The bloody riots in the region were set in motion by the rapidly rising cost of foodstuffs in countries where lazy, autocratic rule has limited the growth in incomes and therefore quality of life.
The rising costs of goods and services have been strongly evident across many countries in Asia (especially since QE2 was announced in September 2010), but the most immediate read-across from the uprisings in the Middle East and North Africa is, inevitably, in China where food price inflation has passed 11 per cent, with headline inflation touching 5.4 per cent and, of course, there too exists an autocratic leadership.
However, there are several crucial differences between MENA and China, which lead us to believe that the Arab Spring is not heading eastwards anytime soon (despite the conspicuous arrests of activists such as Ai Weiwei).
The first and most obvious difference is that in China the general populous is getting richer at a staggering pace as minimum wages were raised by as much as 15-20 per cent in some provinces in 2010.
Secondly, in China the national leadership (in the form of the Communist Party) are generally seen by the people to be fair and reasonably progressive; instead, it is at the local level of government where conflicts occur.
This suggests to us that there would scarcely be a case for a national movement that would plunge the country into uncertainty.
Lastly, inflation in China is likely to start receding in the second half of the year on the back of four interest rate hikes in the last six months, further gradual appreciation of the RMB and other policy measures and persuasions.
In sum, global liquidity is plentiful, Asian markets have proved their resilience and the inflation wall of worry has more or less been climbed, while valuations look reasonable and growth sustainable.
Many uncertainties linger but from uncertainty bull markets can and do emerge. Perhaps what hasn’t broken us could make us stronger?
Performance of indices since Jan-2011
Source: Financial Express Analytics
Edward Stileman is assistant portfolio manager of Waverton Asia Pacific. The views expressed here are his own.