It’s hard to find a market that investors haven’t fallen in love with these days.
Heck, stocks are up around the globe. It seems like everyone’s bullish. And if you’re a momentum investor, just about everything looks good right now.
It also makes what’s happening in a specific European market even more rare. Despite this market being in a strong uptrend, investors still want nothing to do with it.
That’s a great sign for us as contrarian investors. Similar instances have led to quick 20% rallies in the market in the past. And history says we could see another starting now.
Let me explain…
I’m guessing you don’t think much about European stocks. Most folks don’t in normal times. And with U.S. stocks soaring higher, why bother looking anywhere else?
That thought might make sense. But it’s a mistake today.
You see, Italian stocks are up 70% off their low in 2020. That’s an incredible rally. So you’d think that investors would be all over this trade. But that’s not the case…
In fact, investors still want nothing to do with this market. We can see this through the shares outstanding for the iShares MSCI Italy Fund (EWI).
EWI is an exchange-traded fund. And that gives it a powerful tool that mutual funds lack. That’s because ETFs can create or liquidate shares based on investor demand.
When investors are falling in love with this market and want to buy more shares, EWI creates more shares in response. Then, when that demand fades and investors lose interest, EWI simply cuts down on its shares.
For us, that makes shares outstanding a great tool for finding hated markets. And today, despite a massive rally, investors hate Italian stocks.
Shares outstanding for EWI recently hit a decade low. Take a look…
Investor demand for Italian stocks is still near its lowest level in 10 years. U.S. investors clearly want nothing to do with this market.
Importantly, similar setups have turned out to be opportunities for contrarian investors…
After peaking in March 2008, EWI’s shares outstanding fell, bottoming in June 2010. That was a major buy signal for investors. The fund rallied 26% over the next year.
Something similar happened again in 2018. Investors had given up on Italian stocks for years, and shares outstanding bottomed in early December 2018. That was another strong buying opportunity for EWI… it rallied 20% in the following 12 months.
The most recent example came up in May 2020… Once again, shares outstanding had fallen off a cliff. And after demand for Italian stocks bottomed last May, EWI is up 54% today.
That’s what can happen when you buy into an extremely hated market. And it’s happening again in Italian stocks. If you want to take advantage of it, buying shares of EWI is the simplest way to do it.
This might not be as exciting as the booming U.S. market. But history says 20%-plus gains are possible over the next year. And that makes it a bet worth considering right now.
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Source: Daily Wealth