Everyone agrees that we’re at a point of extreme bearishness. The question is whether this means the market is going to turn around.
Absolute Return Partners’ Niels Jensen takes the optimistic side regarding Europe (via PragCap):
I believe a Greek default is now fully discounted. So is a eurozone recession within the next year. The one risk factor which is probably not fully discounted yet is the systemic risk associated with Greece defaulting on its debt. If the authorities cannot contain the domino effect, European equities could fall further.
Not quite out of the woods in Europe. Still, Jensen says they’re buying European equities for the first time in years:
Despite the storm clouds, we have recently begun to add to our European equity exposure again for the first time in years (we are avoiding financials). Please note that this is not a trading call. One cannot predict near term performance with a value approach. I could easily look foolish a year from now. However, I vividly remember the darks days of early 2009. The world was coming to an end, or so we all thought. By early March of that year the probability of bumping into a bull in the streets ofLondon was on par with Gordon Brown winning Strictly Come Dancing. Yet we were reminded shortly afterwards that the darkest hour is often just before sunrise. Within weeks, global equity markets had shaken off the misery of the previous six months and we went on to register one of the greatest bull runs of all times.
I shall be the first to admit that the current situation is different on several accounts (it always is); however, investor behaviour rarely changes, and there is no reason to believe that they haven’t fallen victim to the same behavioural patterns they have been subjected to in the past.
Buy while the opportunity is there, but buy only if you can afford to see through the short term volatility that I fully expect to plague markets for some time to come. I am convinced you will be amply rewarded. Eventually.