US shares saw the biggest turnaround in investor sentiment this month, data from Lloyds Private Banking has revealed, as stock market highs for Apple and the S&P 500’s longest bull market run stifled worries of trade wars and continued political uncertainty.
Net sentiment toward the asset class improved by 12.1 percentage points between July and August, rising from 1.3 ppt to 13.8 ppt, over double the gains recorded by the next biggest riser gold (5.8%). However investors remained the most positive on gold with net sentiment hitting 42.1 ppt this month.
Confidence in US equities among UK investors has climbed 16.4 ppts on Lloyds Private Banking’s index within a year.
Markus Stadlmann CIO of Lloyds’ investment arm attributed the highly bullish sentiment to mild gains in US equity values in July.
On a one-month basis US shares have seen a 3.3 ppt improvement in terms of performance and have improved by 13.8 ppt over 12-months.
Expensive equities
The sunny outlook from UK investors comes despite the fact that most still believe valuations across major stock markets look stretched.
Only 25% of investment professionals surveyed for the CFA UK Valuations Index in Q2 said developed market equities were fairly valued compared with 52% and 12% of respondents that found the asset class somewhat overvalued and very overvalued.
While the number of investors that believe developed market equities are overvalued is lower than in Q3 and Q4 of last year (73% and 74% respectively), “it is clear that concern continues”, said Will Goodhart chief executive of CFA UK.
Stadlmann said unattractive valuations were one of the main reasons the investment team at Lloyds remained underexposed to US shares.
Inflationary pressures
The team also anticipates that American-listed companies will come under pressure from higher inflation, driven by wage growth, which could be exasperated if a trade war with China materialises and drives up import costs.
Expectations around inflationary pressures also coloured UK investors’ outlook on UK assets
UK property and UK government bonds dropped by -9.1 ppt and -6.9 ppt month-on-month on the Lloyds Private Banking Index, as investors feared the fall out from the last interest rate hike.
In the short-term however Stadlmann said he doesn’t expect the US economy to run out of steam.
“US equity warning indicators are telling us to expect continued high volatility and a sideways movement rather than a major fall in stock prices in the next few weeks,” he said.
Unloved UK and Europe
Investors were the least confident in UK and Eurozone equities during the month. Sentiment for both asset classes was negative, with UK stocks seeing the third largest downward change (-4.5 ppt) of all the asset classes.
But overall UK investors were still more bearish on Eurozone shares, which recorded the second worst net sentiment of the month at -14.2%.
Cash was the most unloved by UK investors in August at -24.5 ppt.
