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Record monthly investor confidence drop in September

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In September, the Lloyds Private Banking Investor Sentiment Index recorded the steepest fall since March 2013, when records began.

While net investor sentiment declined by nine percentage points (-9pp) from last month, overall investor sentiment for this month (3 per cent) is also nine percentage points lower than this time last year.

Investor confidence towards emerging market equities fell by-20pp, UK equities -18pp (a record fall), commodities -15pp and Japanese equities -14pp. These declines have all been fuelled by concerns over China’s slowing economy, and the impact of currency devaluation. Nonetheless, despite the fall in sentiment towards UK equities, net sentiment towards this asset class is still positive at 19 per cent, making it the second-most appealing asset for investors behind UK property (48 per cent).

Bucking the trend are eurozone equities, which have seen a positive increase of 7pp. This may be driven in part by the European Central Bank’s continued quantitative easing programme and a weaker Euro. This is the second consecutive monthly improvement for the asset class, however it is still the least-favoured option for investors with a net sentiment score of -36pp overall.

In addition to uncertainty created by China, polarised views on whether the US Federal Reserve will raise US interest rates in September – the first upward move in interest rates since July 2006 – may be contributing to further financial market volatility. This in turn may be contributing to the improved sentiment of gold, which rose by 6pp this month, after falling by over 24pp between July and August.

Asset Class Performance

Actual market returns reflect a similar performance in the past month. In terms of returns earned, gold and UK government bonds both saw increases of 4.6 per cent and 0.5 per cent respectively. Japanese shares saw the biggest decrease in returns (-11.2 per cent), followed by US shares (-8.7 per cent), emerging markets and UK shares (both -8.4 per cent).

In terms of the annual change in actual performance, seven out of the 10 asset classes recorded a fall in returns earned, with the biggest declines seen in commodities (-44 per cent), emerging market shares (-12 per cent) and gold (-12 per cent). Japanese shares have seen the largest annual growth rate (15 per cent), followed by UK property (14 per cent) and UK government bonds (4 per cent).

Ashish Misra, head of portfolio specialists at Lloyds Bank Private Banking, said: “Investor sentiment has this month taken a massive step backwards driven by concerns about the unfolding trajectory of economic activity in China. As the world’s second-biggest economy, and its powerhouse status on the world stage, China’s troubles will inevitably impact the global economy.

“In a reversal of last month, sentiment towards gold has jumped in September. In times of volatility, people look to the perceived safe-haven qualities of gold and this has once again been the case in recent weeks, which we may expect to continue in the short-term as uncertainty and investor anxiety holds to present elevated levels.”

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