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Eurozone shares collapse – investors race to ‘safe’ assets

Kit Klarenberg
Written By:
Kit Klarenberg

Investor sentiment towards Eurozone shares has fallen its furthest since March 2013, according to the Lloyds Bank Private Banking Investor Sentiment Index. 

Net investor sentiment for the asset class declined 19 percentage points from last month, and 30 percentage points year-on-year to -48 per cent. UK shares saw the second biggest decline in sentiment (to 26 per cent), reversing the 14 percentage point (pp) increase seen last month in the asset class, and returning sentiment to pre-election levels. Emerging market shares saw the third largest decrease (-10pp), to 10 per cent.

Conversely, gold and UK government bonds recorded an increase in July, rising 6pp and 2pp from last month to 36 per cent and 19 per cent respectively.

Despite an eight percentage point decline, net sentiment is strongest for UK property (at 47 per cent), followed by gold (36 per cent). Eurozone shares (-48 per cent) and Japanese shares (-1 per cent) are currently the only two asset classes to face negative sentiment. Lloyds Private Banking speculates this drop is attributable to the fall in the value of Chinese equities in the past month.

In line with asset class sentiment, actual market returns show nine out of ten classes reporting a decrease in the past month. In terms of returns earned, there was a decrease during the past month for all but UK Government bonds, improving 0.4 per cent. Eurozone, UK shares and emerging market shares all saw the largest decrease in returns of -5 per cent.

Annual Changes

Half of the ten asset classes have seen a fall in net sentiment over the last year. The biggest declines have been for Eurozone (-30pp), UK shares (-12pp) and emerging market shares (-9pp). Gold has seen the largest increase over the past year (14pp), followed by US shares and UK government bonds (8pp).

Asset Class Performance

In terms of annual change in performance, five classes recorded a fall in returns earned. The biggest declines were recorded in commodities returns (which fell by -37 per cent), gold and emerging market shares (which both fell by -12 per cent).

“We are witnessing a classic response from investors during this dramatic time in the Eurozone,” said Ashish Misra, head of portfolio specialists at Lloyds Bank Private Banking.

“While riskier assets, such as Eurozone shares go down due to the economic uncertainty, ‘safe haven’ assets such as Gold and UK government bonds increase due to their flight-to-safety behaviour typical of investors in such market conditions.

“The significant jump we saw last month for UK shares also shows that the euphoria post-general election is moderating and correcting back to pre-election levels. Overall, despite the results making for some bleak reading, we may see, at best, a visible pop-up in performance next month for Eurozone shares, or at worse, a flat lining of results.”