The mood among UK investors was generally “buoyant” across the board, with sentiment increasing for the fourth month in a row and rising 2.5% since December 2017.
Against this backdrop, UK shares made the biggest comeback in the eyes of British-based investors.
Between December and January, confidence in equities rose 8.5 percentage points (ppts) in the private bank’s survey, moving from 3.9 ppts to 12.3 ppts. However, the year-on-year net investor readout was still negative at -9.1 ppts
UK investors were also more hopeful about the prospects for UK government and corporate bonds, which both recorded a 2.9ppts rise in sentiment month-on-month. Notably, government bonds finally crossed back into positive territory at 0.4ppts, after 10 months of investors feeling negative toward the asset class.
The January findings say a lot about “the differences we see when comparing sentiment, performance and valuation,” said Markus Stadlmann, CIO at Lloyds Private Bank.
“Although UK and US shares both scored highest this month for sentiment, we see contrasting valuation scores between the two,” he said. “In our view, despite some good growth signals emerging from the US where tax cuts should further support corporate growth in 2018, we currently think US equities are expensive. Conversely, we see UK equities – and also emerging market equities – as being cheap.”
Perhaps paradoxically, gold and emerging market shares continued to be the favourites among UK investors, with confidence climbing to 34.8 ppts and 25.3 ppts, respectively.
However, Stadlmann highlights Japanese equities as his “one to watch” in 2018, despite the fact it was middle of the pack in terms of sentiment.
“The Japanese economy is in rude health, with less support now required of the central bank. Tellingly, the profit margins of Japanese corporates as a percentage of revenues are currently higher than their previous peak in the 1980s.”
