China market contagion is an "irrational phenomenon"

Equity market contagion is a familiar but often irrational phenomenon, which can be driven more by ill-defined fears than by sober analysis.

We believe the effects of the slowdown in China on Japanese companies are being overestimated and driving a misguided sell-off of China-related stocks.  Suppliers of raw materials and industrial consumables will indeed likely see a sharp slowdown in demand as their Chinese customers elect to run down their materials inventories for a while. But the impact on Japanese companies, not typically raw materials suppliers, is only likely to be significant if the slowdown is very pronounced and protracted. Suppliers of some capital goods will suffer to some extent if Chinese companies defer c...