When fear and volatility enter the stock markets, investors are
particularly quick to sell off their international investments in
overseas stocks.
However, Ian Scott, Nomura's Global Head of Equity Strategy, argues
that these types of sell-offs are often followed by sharp, rapid
rebounds in those very same equities.
Scott notes that the current international equity flow metrics are
unusually negative, which is an argument to buy. At the current level,
the only time it would've been too early to buy was during the
Lehman Brothers crisis.
Once again, investors have responded to
the crisis environment by pulling in their horns, and repatriation has,
once again, been the prevailing response. The degree of flight from
overseas stocks in the three months to October is on a par with the
three months prior to the Lehman bankruptcy – things then subsequently
deteriorated further, reaching a nadir in October 2008 – and the three
months after the stock market crash in 1987.
As mentioned above,
since the nature and timing of these past crisis periods is so
different, comparisons are fraught, but one thing we can say here is
that the impact on international investor sentiment has been pronounced
and their behavior is on a par with that during some extremely stressed
periods. History suggests that these occasions are good buying opportunities and the market typically recovers quickly.
The exception was the Lehman bankruptcy, where investor deleveraging in
international markets became more pronounced and took a further five
months for stocks to bottom.
