An investor confidence survey from the Association of Investment Companies of Morningstar’s UK website users points towards this complacency. The survey found 49% of investors plan to increase their stock market exposure over the next few months, only a fraction down from 56% at the beginning of last year, and the 55% recorded in early 2013.
This is in some part because there is nowhere else to go given where bond yields are still, but even so it is a surprising figure considering the wall of worries and the toppy look many equities markets have now.
Another standout figure from the AIC research was just 16% of investors taking part said a stock market correction was a ‘top worry’ for them.
A large dose of home bias seems to be mixed in as well with the UK still the most favoured region to invest in for 24% of investors questioned, despite the FTSE being in record breaking levels and a potentially chaotic election looming.
In pole position to be the tipping point is a big climb in the oil price. The very thing that allowed for such a big fall in the price is equally able to send it shooting back up.
Saudi Arabia’s leadership clearly decided late last year that it is in their long term economic and geopolitical interest to allow the low price for the time being. There is a complex web of reasons behind this including a desire to put fracking companies out of business and political pressure from America.
A change of strategy could come at any time however and with Saudi Arabia still having approximately 16% of the world’s oil nobody could do much about the price climbing.
This would quickly take the chains off inflation in the US and UK at least, and interest rate hikes which had been postponed largely by the oil price slide would follow. That would start to make bonds a much better bet than they have been in several year and asset allocations could quickly shift.
“It is unsurprising to see equities rising while investors’ concerns remain. This illustrates the age-old tendency of markets to climb a wall of worry,” said Guy Foster, head of research at Brewin Dolphin Wealth Management.
“In fact it is the absence of concerns which normally spells the end of bull markets,” he warned. “Once the last bear has capitulated and bought into the rally, who is left to drive the market forwards?”
