Investor confidence rebounds in October, but caution remains in the market
– Investor sentiment improves on eight out of ten asset classes.
– The two asset classes which saw sentiment go down this month were two of the perceived safe havens, gold and UK government bonds.
– However, actual market performance shows UK property and UK government bonds were the top performing assets over the last month.
October saw a rebound in investor confidence, after September’s record falls, according to the latest Lloyds Bank Private Banking Investor Sentiment Index. Overall investor net sentiment for these areas became more positive by four percentage points (4pp) this month, taking it to an average of 7%. However, this is still eight percentage points (8pp) lower than this time last year, demonstrating an ongoing caution towards the global markets.
In contrast to September, where concerns about the slowing of China’s economy contributed to sentiment towards eight out of ten asset classes seeing month-on-month declines, October has seen sentiment towards eight out of ten asset classes improve, albeit more marginally than the large declines seen last month.
The greatest improvements in sentiment in October were towards Japanese equities and emerging market equities, both of which saw seven percentage point (7pp) rises. This offset the big falls in sentiment in September, where these assets saw declines of fourteen percentage points (14pp) and twenty 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 surge ahead as 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%, far higher than the next highest, UK equities, at 24%.
Ashish Misra, head of portfolio specialists at Lloyds Bank Private Banking, said: “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. 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.”
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% and 1.7% respectively). Eurozone shares saw the biggest decrease in returns (-3.2%), followed by commodities (-2.7%) and emerging markets shares (-2.4%).
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%) and Japanese shares (-11.5%) seeing the biggest declines. UK government bonds lead the way in terms of the largest growth rate (4%), followed by UK property (2.4%).