Since Hargreaves Lansdown created the HL Investor Confidence Index in 1995, the lowest annual level it has hit was in 2008, at the height of the banking crisis.
However, after averaging 76 throughout 2017, this year’s figure is one basis point lower than 2008, and when combined with the average index level of 78 recorded in 2016, represents a prolonged period of “extremely poor” sentiment among UK investors.
According to Hargreaves Lansdown, the lowest monthly figure ever recorded for investor confidence was in November 2016, when the index fell to 59 as US voters were going to the polls in the presidential election.
In December 2017, the reading stood at 67 which is the lowest monthly figure for the calendar year, falling from 77 last month.
According to Laith Khalaf, a senior analyst at Hargreaves Lansdown, the reason sentiment this year is below all those years which include the tech crash, the Enron scandal and the financial crisis, perhaps suggests investors have become more anxious as time has gone on.
This, he said, is “no doubt partly a result of the shadow cast by the financial crisis and the fact that social media has given voice to as many worrying statistics as you’d care to come up with”.
“There is a serious disconnect between investor sentiment and what’s going on in the UK stock market right now,” he added. “Investor confidence is pretty low, largely because the UK faces a changeable political and economic situation, as a result of Brexit and the 2017 general election, while the financial crisis still casts a long shadow over proceedings. At the same time, the FTSE is flying high.
“The UK economy and the stock market are of course two very different beasts, as evidenced by their divergent performance of late, however there is inevitably some contagion in sentiment from one to the other. The Brexit blues have compounded an already downbeat mood that has dogged sentiment since the financial crisis, following which investor confidence has been noticeably dampened.”
The findings on investor confidence seem at odds with recent data from the Investment Association, which has shown that 2017 has been a record breaking year for inflows into funds. Covering the year to October, some £38.8bn has been invested, which Khalaf said goes to show that investors are not letting their gloomy mood prevent them saving for the future.
“Nor should they, if anything greater uncertainty makes it all the more important to build up a nest egg now, rather than relying on tomorrow, or even worse, the state,” he said.
“Investors are however fleeing UK equities in droves, with over £2bn withdrawn from funds in this sector so far this year. However, every cloud has a silver lining, and low levels of investor confidence mean the progress made by the UK stock market has not been built on irrational exuberance, and there’s plenty of scope for sentiment to improve from here.”
Looking forward into 2018, Khalaf said Brexit is the wildcard for the UK stock market. He noted that positive progress in negotiations would likely lead to a rise in the prices of UK domestic cyclical companies, while at the same time boosting the pound and thereby providing a headwind for the share prices of the big international blue chips.
“A collapse in talks would likely see the opposite scenario come to pass,” he added.
