How To Trade Radiation Fears and Falling Asian Stocks (LDK, HSOL, TSL, TM, SNE, FXI, YXI)

Stock markets across Asia fell on Tuesday, as the world's financial markets continued to react to the devastation from last week's earthquake and tsunami that hit Japan.

As if the the initial damage caused by the earthquake, tsunami and fires wasn't enough, the Japanese government also has to deal with several nuclear reactors that are in danger of meltdown.

Rising radiation levels have led to the Japanese government evacuating thousands of civilians who live nearby the reactors and telling others to stay indoors in order to reduce their exposure to possibly harmful levels of radiation. The United States Navy took the threat of radiation exposure seriously enough that it repositioned ships that were sent to aid the Japanese in their recovery efforts.

Unlike most Asian companies, China's solar power companies have already seen their share prices rise because nuclear power has already become much less attractive as the problems at the Japanese nuclear power plants continue to escalate. LDK Solar Co. Inc. LDK, Hanwha SolarOne Co., Ltd. HSOL and Trina Solar Limited TSL are three Chinese companies in the solar power sector that will find their products and services in greater demand if the nuclear situation in Japan worsens.

With much of its nuclear generating capacity and oil refining capacity offline and Japanese multinationals like Toyota Motor Corporation TM and Sony Corporation SNE closing factories, there is real cause for concern that Japan's economy could be headed for a deep recession. Reflecting those fears, the Nikkei 225 index of Japanese stocks fell a further 1,015.34 points, or 10.55%, on Tuesday.

Stock markets all across Asia followed suit. The Taiwan Capitalization Weighted Stock Index, or the TSEC weighted index, fell 285.24 points, or 3.35%, to 8,234.78. The Hang Seng Index of Hong Kong traded stocks fell 667.63 points, or 2.86%, to 22,678.25.

Although it's hard to see how anything positive could come from the disaster that has struck Japan, it could provide some inflationary relief to China's overheating economy. The Chinese government has watched with unease as governments across North Africa and the Middle East have come under pressure from angry citizens. If there is one thing that is currently angering Chinese citizens, it's inflation.

Although China's economy has been been doing nothing but growing, so has inflation. With prices of food and housing on the rise for quite some time, the Chinese government has been taking steps to reduce inflation. With nearly a third of Japanese oil refining capacity offline and the possibility that the country's economy may not recover for quite some time, demand for oil may be down for years, which could bring down costs in China or at least slow inflation's rise.

The iShares FTSE China 25 Index Fund FXI is an ETF that would stand to benefit if the Chinese economy is not as badly affected by Japan's woes as investors currently fear.

However, if Japan's problems lead to a slowdown in China's economic growth, the ProShares Short FTSE China 25 YXI is an ETF that investors could profit from. This ETF seeks daily investment results, before fees and expenses, that correspond to the inverse of the daily performance of the FTSE China 25 Index.