Investor confidence rebounds, but caution remains

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October saw a rebound in investor confidence following record falls in September, according to the Lloyds Bank Private Banking Investor Sentiment Index.

Overall investor net sentiment grew by four percentage points (4pp) this month, taking it to an average of 7 per cent. However, this is still eight percentage points (8pp) lower than this time last year, demonstrating an ongoing caution towards global markets.

In September, concerns about the slowing of China’s economy saw declines in sentiment towards eight out of 10 asset classes. October has seen sentiment towards eight out of 10 asset classes improve, albeit more marginally than the large declines seen last month.

The greatest improvements were towards Japanese equities and emerging market equities, both of which saw seven percentage point (7pp) rises. In September these assets saw declines of 14 percentage points (14pp) and 20 percentage points (20pp) respectively.

Eurozone equities continued to be viewed more positively than last month, increasing by six percentage points (6pp) to build on the seven percentage point (7pp) increase in September. With the European Central Bank’s continued quantitative easing programme potentially having an impact, this is the third consecutive monthly improvement for the asset class.

In a reversal of fortunes, the perceived safe havens of gold (-2pp) and UK Government bonds (-1pp) were the two asset classes to see marginal falls in sentiment in October, as returning confidence may have encouraged some investors to look towards those asset classes with a greater perceived risk-reward potential.

UK property continues to be the stand out asset class when it comes to investor sentiment. With a further six percentage points (6pp) increase in sentiment in October, overall investor sentiment towards this asset class stands at 53 per cent, significantly higher than the next highest, UK equities, at 24 per cent.

Asset class performance

In September, actual market returns were more negative than the improvements in sentiment would suggest. Only UK property and UK government bonds saw significant increases of (2.3 per cent and 1.7 per cent respectively). Eurozone shares saw the biggest decrease in returns (-3.2 per cent), followed by commodities (-2.7 per cent) and emerging markets shares (-2.4 per cent).

In terms of the change in actual performance over the last three months, seven out of the 10 asset classes recorded a fall in returns earned, with commodities (-18.4 per cent) and Japanese shares (-11.5 per cent) seeing the biggest declines. UK Government bonds lead the way in terms of the largest growth rate (4 per cent), followed by UK property (2.4 per cent).

“With the US Federal Reserve not raising interest rates in September, and ongoing concerns over China, there is still much uncertainty in the global economy,” said Ashish Misra, head of portfolio specialists at Lloyds Bank Private Banking.

“It is encouraging to see investor sentiment increase however, and the strength of the sterling denominated asset classes which continue to keep levels of sentiment in positive territory.”

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