The tale of Japan during the last 20 years has been a depressing one.
After a monster equity and real estate bubble that burst in 1990, Japan has been in a 22 year bear market. The Nikkei has dropped from 40,000 to 9,000, a loss of more than 75 percent. Real estate is down more than 50 percent from its highs.
To top it off, Japan was hit by a monster tsunami and near nuclear meltdown in 2011. However, often news events such as these can represent a turning point.
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For example, Hurricane Katrina was the top for U.S. real estate (the destruction in New Orleans showed the flaws of owning coastal real estate which topped within a year).
I think this tsunami represented a sort of bottom for Japan.
The valuations of Japan’s companies are very inexpensive, it has a hard working population and top tier companies.
Japan isn’t without problems. Its demographics are horrible with no population growth and an aging population.
This population is also xenophobic and has relented against having immigration pick up the population slack. The yen has been soaring, which is hurting Japanese exporters. Government debt has soared to near 180 percent of GDP.
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However, there are silver linings. The yen looks like it has topped and should correct, which will help exporters. The last 20 years of deleveraging has seen consumer debt as a percentage of GDP drop from 250 percent to 113 percent, a post World War II low.
In addition, Japan will benefit from strong demographics in the rest of booming Asia by selling their products to these populations. Japanese equities are also dirt cheap and mass pessimism is rampant.
To me, buying Japan is like buying the United States in the early 1980s at the bottom of its secular bear market.
It might take a while for things to get moving, but once they do, Japanese stocks should outperform most of the globe for the foreseeable future.
About the Author: David Skarica
David Skarica is a member of the Moneynews Financial Brain Trust. Click Here to read more of his articles. He also writes the Gold Stock Adviser. Discover more by Clicking Here Now.
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