My colleague Eric Roseman, the Sovereign Society’s investment director, recently posted a blog article about a reliable contrarian indicator that’s a favorite of mine.
Eric is correct in pointing out that “individual investors are “usually the worst market-timers.” In fact, it’s been shown again and again that individual retail investors constantly stampede into – or out of – stocks at precisely the wrong time.
Think about all the high-tech and internet stocks that went public in 1999 and early 2000. These IPOs were many-times oversubscribed driving prices into the stratosphere. Individual investors unfortunately loaded up on many dot.com stocks at just the wrong time.
The same dynamic works in reverse too. Many retail investors finally threw in the towel on stocks in 2002 – as the war in Iraq was about to start – the Nasdaq has just about doubled since then.
Global Retail Investors are Bailing Out of Stocks
Eric points out that according to “data from the Investment Company Institute in the United States, mutual fund investors redeemed $32.9 billion dollars’ worth of stock funds last month – the highest liquidation figure since July 2002 – just three months prior to the bottom of that bear market.”
The same pattern is true in Canada, Italy and France – with retail investors dumping their stock funds and running toward cash. But perhaps nowhere on the planet has any market experienced a bigger reversal of fortune than in China. In fact, China has gone from first to worst in record time!
A recent article in Bloomberg news details just how unloved China has suddenly become among retail investors. “China, home to the world's best- performing stock market last year, is now the least favored in Asia,” according to the story.
China Swings From Most Favored to Most Hated
Citigroup analysts found that “China has become the most 'underweight' market in Asia for the first time ever. Funds dedicated to investing in China saw net redemptions of $1.1 billion for the week ended Jan. 23, the most in Asia.”
At least China can take some comfort in the fact that investors aren’t discriminating against it alone. In fact, India country funds had outflows of $848 million recently, while Asian funds in general suffered nearly $5 billion worth of redemptions during the same period.
So the obvious question is: could this be a contrarian BUY signal on China now that retail investors have fallen out-of-love? I strongly suspect my colleague Eric Roseman would say NO, but I’m not so sure.
In my blog tomorrow, I’ll discuss another prominent investor’s views on China. Stay tuned!
its great to see these big businesses doing well. but how many actually care about people.
visit my site at www.stopglobalgreed.co.za and hopefully yoy start feeling guilty about how people are treated!!!
Posted by: richard | February 27, 2008 at 05:22 AM