The Latest Move to Undo the 'Lost Decades' for This World Power

Thirty years of falling prices... The 'next man up' wouldn't be good enough... In December 2012, a hero emerged... The latest move to undo the 'lost decades' for this world power... This opportunity is getting harder to ignore... These stocks could soar 25%-plus this year... A 'one click' way for U.S. investors to profit...

The 'next man up' wouldn't be good enough to save this sinking ship...

It was the kind of environment that can create heroes...

The 2008 global bust remained fresh in everyone's minds. The world was trying to regain its footing. And this country had to recover from more than just the 2008 bust...

You see, local stocks were mired in a multidecade downturn. At the time, this country's stock market was down more than 50% in a stretch of roughly 30 years.

Economic growth was nearly nonexistent... This country's growth rate fell from a steady 3%-plus in the 1980s to negative-5% during the 2008 bust.

And the thing is, I (Chris Igou) am not talking about some small country. I'm referring to Japan... the third-largest economy in the world behind the U.S. and China.

But in 2012, a hero emerged to turn the page on this bleak time in Japanese history...

To this day – more than seven years later – most Americans won't recognize his name. But this man's efforts to spark growth in Japan have led to huge upside for foreign investors...

Since this hero – Shinzo Abe – stepped into his new role as Prime Minister of Japan in December 2012, we've seen a massive turnaround in the country's stock market. With Abe in the highest office, Japanese stocks are up more than 100% over the past seven years.

That's a remarkable reversal after losing 50%-plus over the previous three decades.

So what's his secret?

Well, Abe took a page right out of the playbook that sparked the longest bull market ever in U.S. stocks. And he isn't finished yet...

As I'll explain in today's Digest, Abe – the man who is undoing the "lost decades" in Japan – is back at it again. And it could send Japanese stock up more than 30% this year. Best of all, I'll share a simple, "one click" way for investors in the U.S. to capitalize right now.

But before we jump into those details, let's quickly cover how we've gotten here...

'Abenomics' are an extension of the same principles driving the U.S. bull market...

During his campaign to become Japan's prime minister, Abe ran on big promises that seemed "extreme" at the time.

Essentially, he wanted to be former Federal Reserve Chairman Ben Bernanke "on steroids." My friend and colleague Steve Sjuggerud first wrote about Abe's ideas in his True Wealth newsletter back in December 2012...

[Abe] wants to do what Federal Reserve Chairman Ben Bernanke is doing in the U.S. – multiplied by 10. (Bernanke has cut interest rates to zero – and has been printing money. Bernanke is fueling the "Bernanke Asset Bubble," which has the potential to be the greatest asset bubble in history. It could drive U.S. stocks and real estate to new, unheard-of heights.) ...

Abe will do extreme things...

He may force the central bank [of Japan] to cut interest rates to BELOW zero and buy trillions of yen worth of assets... pushing Japanese asset prices up. The central bank will pay for these assets by "printing" yen – crushing the value of the currency.

Abe was elected on these promises... And, as I said, with a two-thirds majority, he has the power to override his opposition and make good on them.

The end result should be a weaker Japanese yen, and soaring Japanese stock prices (as below-zero interest rates force people's money out of savings and into SOMETHING else).

The story has unfolded exactly like Steve mapped out in late 2012...

Japan cut interest rates below zero. (Its benchmark rate has been at -0.1% since February 2016.) And it has driven folks who can't earn money in the bank into Japanese stocks.

It fueled a major rally... Japan's benchmark Nikkei 225 index was at about 10,000 before Abe took office in December 2012. It closed today at more than 23,000 – an incredible 130% gain.

And the thing is, we're still in the early innings of this great asset boom in Japan...

As I'll show you, Abe isn't finished with his "extreme" moves. Plus, it's getting harder to ignore the opportunity in Japan as companies become more shareholder-friendly...

Japanese companies are putting mountains of cash to work for shareholders...

Abe's multiyear corporate-government reforms are showing signs of progress.

Historically, Japanese companies have stored away piles of cash instead of putting money to work for shareholders. But that's starting to change right now...

Regular Digest readers know a company can return money to shareholders in one of two ways... It can either buy back its stock or increase its dividend payouts.

Both of these methods have increased in Japan recently...

Share buybacks rose 48% in fiscal year 2019, putting the total annual value at around 6 trillion yen. That's up dramatically from only 2 trillion yen in 2013. That's a massive jump! And it's a big step toward rewarding shareholders instead of just storing cash in the bank.

We saw a similar record-breaking number in dividends. In the second quarter of 2019, money spent on dividends in Japan totaled $39.6 billion – more than any time in history.

It's clear that a drive toward investor rewards is taking place in Japan.

But the thing is, Japanese companies still have a ton of cash to put to work. As of last September, these companies had $4.8 trillion in cash stored away. And that means we could see even more buybacks and rising dividends in the future.

We're seeing major changes in Japan's stock market. Abe's reforms are encouraging companies to focus on rewarding shareholders. And I expect that to continue as these companies put more money to work in the coming months and years.

Abe's previous reforms seem to be working, but it's not time to sit back and relax...

On Monday, Japan noted that its economy contracted in the final quarter of 2019...

Economists forecast a contraction of roughly 4% from the previous quarter, but the pullback was a little more than expected.

That's an alarming drop for Japan's economy. Headlines are contributing the fall to a mix of things...

The government increased the national sales tax in October – from 8% to 10%. And as a result, the final three months of the year saw a sharp drop in consumption amongst consumers.

Japanese officials also cited a drop in tourism thanks to continued fears about the spread of the coronavirus from China.

For now, these appear to be short-term headwinds for Japan. But if Abe fails to restore growth to the world's third-largest economy, it could spell further concerns for investors.

However, this isn't even close to the uphill battle that Abe faced when he first became prime minister. And he has already announced a plan to combat the latest pullback...

To spur growth and stave off further damage, Abe announced a $239 billion stimulus package in December...

He is looking to put the money to work in the coming years. It's his latest effort to spark inflation, avoid a larger downturn, and drive longer-term growth for the country.

That's exactly what Japan needs right now.

It's in line with Abe's goal to keep driving expansion in Japan. And if the past is any indication, investors won't have to wait long to see the benefits of the stimulus package...

Previous stimulus-plan announcements have come on the eve of big rallies...

In July 2016, Abe announced a similar move. It was a $266 billion plan to increase spending for infrastructure and drive economic growth. And Japan's market took off throughout 2017...

From the end of July 2016 through January 2018, the Nikkei 225 rallied more than 30%. You can see this rally in the chart below...

Abe's stimulus plan was able to revitalize Japan's market. And investors who took advantage of it made solid gains over the final six months of 2017.

But it wasn't the only big move after Abe announced a stimulus plan...

In October 2014, he said the Japanese government would buy more government bonds and stock index funds. It was an attempt to counteract an increase in the sales tax from 5% to 8% earlier that year.

And this time, it worked again... Japanese stocks were up about 25% from mid-October 2014 through April 2015. Take a look...

Again, Abe announced another stimulus plan in December. And as you can see, this proposed $239 billion package could be another tailwind for Japan's stock market.

So yes, Japan's economy slipped in late 2019.

But Abe is determined to stop the bleeding and turn things around for his country...

And as I explained, Japanese companies are rewarding shareholders with share buybacks and increasing dividends. With a mountain of cash on the sidelines, I expect we will see more of the same in the coming years.

Over the long term, Japanese companies are a great opportunity for investors.

To top it all off, Abe's latest stimulus plan could boost Japan's stock market in 2020. A 25%-plus rally is possible, thanks to the prime minister's effort to keep Japan moving forward.

The undoing of Japan's lost decades isn't over yet. It'll still take more time. And investors who take advantage of this opportunity could see big gains as this asset bubble takes off.

And U.S. investors can take advantage of a simple, 'one click' way to buy Japanese stocks...

Buying foreign stocks can be painful for a lot of folks.

Not all brokers can buy the foreign stocks you want. And there can be more fees or hoops to jump through, depending on which foreign markets you're looking at.

But it's not always difficult... Today, you can own a basket of Japanese stocks with just one click. And you can do it right here in the U.S. through an exchange-traded fund ("ETF").

I'm talking about the iShares MSCI Japan Fund (EWJ).

This ETF tracks the broader Japanese market. More than 99% of the fund is invested in Japan as a result. It gives investors easy access to more than 300 Japanese companies.

So if you want to take advantage of Abe's continued undoing of the lost decades in Japan, consider buying shares of EWJ. It's one of the easiest ways to profit in Japanese stocks.

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The mailbag is quiet today. As always, we'd love to hear what's on your mind. Tell us at feedback@stansberryresearch.com. Remember... we can't provide individual investment advice, but we do read every e-mail we receive.

Good investing,

Chris Igou
Jacksonville, Florida
February 19, 2020