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Investors continue to reject UK stock market and look abroad

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Investors continued to show confidence in August, but preferred to invest abroad rather than in the UK, according to statistics from the Investment Association.

Net retail sales of investment funds were £3.6bn, the highest selling August on record, bringing the total of funds under management to almost £1.2trn.

Stock market funds were the best-sellers, drawing £1.1bn. However, UK investors are increasingly looking beyond their home market, with funds investing in the Europe ex UK and Global equity sectors the most popular. They saw net sales of £507m and £347m respectively. In contrast, UK focused strategies have seen a net retail outflow of £1.4bn since the start of the year.

In spite of the prospect of rising interest rates, which usually spells bad news for bonds, investors continued to buy into bond funds. They preferred the flexible ‘strategic’ bond sector, which drew £333m, but corporate and global bonds also proved popular.

Adrian Lowcock, investment director at Architas, said: “Investors have been more positive on the outlook for the global economy than at any other time since the financial crisis…In 2017 investors have been able to shrug of political uncertainty and geopolitical tensions, even sabre rattling between the US and North Korea hasn’t managed to dent investor confidence.”

“Investors are clearly cautious on the outlook for the UK and concerned about the impact the rising inflation is having on the UK economy and the effects Brexit will have on the country’s economy in the future. As such investors have been favouring overseas markets. As a result, parts of the UK market do look more attractively valued, particularly companies with a domestic focus, however there is no clear trigger for these stocks to be revalued as the progress on Brexit negotiations and its impact on the economy is slow and lacking in detail.”

He added that investors have been attracted to Mainland Europe as the economy has improved: “While valuations are no longer at a significant discount to their US peers, companies are likely to benefit from better growth prospects as the Eurozone is at an earlier stage of the economic cycle compared to the US and UK. In addition, UK investors have historically been under exposed to the region.”

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