The earthquake and resulting tsunami in Japan last Friday afternoon has had an unimaginable impact on the people of north-eastern Japan.

Incredible devastation from the tsunami in particular has left tens of thousands of Japanese missing or confirmed dead, hundreds of thousands homeless and millions affected. The resulting nuclear impacts are still unfolding.

It will certainly be days, and likely weeks before the full human and financial toll is known.

On an economic front, there will certainly be a massive short- and medium-term impact on local economies in the impacted areas.

However, the Australian market has reacted as if there has been a permanent impairment to the Australian and global economies, with almost all companies on the exchange suffering as a result of the recent turmoil.

Australian Impact Unlikely

For there to be a significant impact on the broad Australian market, we would need to see Australian and international consumer spending slow, and a likely consequent pull back in business investment and hiring. In a sense, that scenario is how recessions begin.

The question is whether it’s likely – and in my opinion, it’s incredibly unlikely.

The global consumer has just spent two years deleveraging, Australian savings rates as a percentage of income are just short of double figures, and while different countries are exiting the downturn at different speeds, and are at different stages of recovery, the global economy is well past its low.

In short, the world has taken its medicine – there is little if any ‘froth’ left in the economy that a shock such as that we’ve seen from Japan would usually wipe out.

On top of that, the Japanese economy is only just over 10% of the GDP of the OECD, based on that organisation’s 2009 numbers. Even a modest economic downturn in Japan would have a limited impact on the OECD GDP, let alone the broader global numbers.

Let’s be clear, it is possible to imagine a scenario where in hindsight the Japanese disaster becomes the first domino of an economic downturn – but the probability of that outcome has to be very small indeed.

Possible Impact for Some Australian Companies

There will be industries affected. Clearly, governments around the world will be more circumspect when it comes to nuclear power.

Certainly, investment theses built on the premise of the expanding use of nuclear power will be tested in the coming 12 – 18 months.

Shares in large-cap companies with uranium interests like BHP Billiton (ASX: BHP), Rio Tinto (ASX: RIO) and ERA (ASX: ERA) have already been hit, and shares in smaller uranium explorers like Deep Yellow (ASX: DYL) and Bannerman Resources (ASX: BMN) have been smashed

Tourism, both into and out of Japan, will be impacted in the short-medium term. In times of disaster, people stick close to home.

In 2010, Japanese tourists accounted for around one in fifteen short-term visitors to our shores. It is probable that we may experience a short-term dip in Japanese arrivals, impacting local tourism providers. Shares in transport operators such as Qantas (ASX: QAN) and Virgin Blue (ASX: VBA) have fallen, as have travel agencies including Jetset Travelworld (ASX: JET).

A Small Blip

There will also be some other companies directly affected and some – if limited – second-order impacts.

Flow-ons from the above, financial impact due to changing exchange rates, one-off changes to order books and cancellations or delays of projects will impact some businesses for a period of time.

We may see some exports to Japan curtailed temporarily, and a slow-down in imports from that country.

But it’s hard to foresee – without an additional, unforseen shock with broad and long-term impact – a credible scenario wherein the very large majority of Australian industry will be negatively impacted by the events of the past week.

Yes, there will blip, but history will see it as a small blip.

An Opportunity in the Gloom

Over the past few days, companies with no direct or indirect exposure to the disaster (excluding a possible but incredibly unlikely global contraction) have been hit hard.

Companies as diverse as CSL (ASX: CSL), Westfield Group (ASX: WDC), Commonwealth Bank (ASX: CBA), Cochlear (ASX: COH) and Domino’s (ASX: DMP) all fell on Monday – and since – with the broader market. Some have recovered, others remain in the doldrums.

The opportunity for investors is to assess the degree of likely impact on Australian companies, then invest accordingly. When prices have been hit across the board – seemingly arbitrarily, without heed to the degree of impact from the earthquake and the tsunami – opportunities are sure to abound, and bargain hunters with a medium-long term view have a great chance to take advantage of the discount.

Fool contributor Scott Phillips owns shares of Westfield Group and Domino’s.

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