Extreme pessimism hits global investors

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Ian Scott, Nomura’s Global Head of Equity Strategy, argues (via Business Insider) that investors are quick to get rid of their foreign equities when fear sets in. However, these sell-offs are often followed by sharp rebounds in those very same stocks.

The chart below indicates that the current international equity flow statistics are particularly negative, which Scott views is an argument to buy. At the current level, the only time it would have been too premature to buy was during the Lehman Brothers crisis when deleveraging postponed the bottom by five months.

As an aside, as one would expect, the flow chart is a close inverse of the CBOE Volatility Index (VIX), Wall Street’s so-called “fear gauge”, i.e. increasing sales of overseas stocks (a declining trend on the chart below) correlate closely with a rising VIX.

Source: Business Insider, November 21, 2011.

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