VIX Surge Signals Chance to Buy U.S., Japan Stocks, Daiwa Says

(Bloomberg) -- The recent surge in stock-market volatility may be a signal to buy U.S. and Japanese shares, according to Daiwa Securities Co.

Since 2001, equity benchmarks in the U.S. and Japan have tended to climb during the year after the Cboe Volatility Index surges, said Hideyuki Ishiguro, a senior strategist at Daiwa Securities in Tokyo. Over the 26 weeks after the volatility index rises above 30, gains have averaged 9.7 percent for the S&P 500 Index and 2.8 percent for the Topix, he said. During a 52-week period, the mean returns were 20 percent and 5.5 percent respectively.

“When the market psychology diverts from the fundamentals and swings to excessive pessimism as in the present situation, both U.S. and Japanese stocks may become a buy in the medium-to-long term,” Ishiguro said in a phone interview. “The stock markets may not yet settle down within a month, but looking at a half-year or one-year horizon, the markets may bounce back.”

The VIX index, the market’s so-called fear gauge, jumped to as high as 50 last week amid the global equity rout. The selloff sent both the S&P 500 and the Topix down 10 percent from highs, meeting the accepted definition of a correction.

To contact the reporters on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net, Toshiro Hasegawa in Tokyo at thasegawa6@bloomberg.net.

To contact the editors responsible for this story: Divya Balji at dbalji1@bloomberg.net, Naoto Hosoda, Jonathan Annells

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