UK investor sentiment up but faith in bonds declines

UK investors remained upbeat about global investment opportunities in February, but confidence in UK corporate and government bonds declined.

UK investor sentiment up but faith in bonds declines

Lloyds Private Bank’s latest investor sentiment index (ISI) revealed an overall sentiment score of 10.9% in February, an increase of 1.9% compared with January and 4.8% since last February.

It said the two 2018 sentiment readings outscored anything seen in 2017 and marked the fifth month in a row sentiment has risen.

However, with the recent market correction, this score is likely to have moved since, Lloyds noted.

February has already been deemed a poor month for both UK government bonds (gilts) and UK corporate bonds as sentiment toward gilts fell by 1.8%, putting the asset class back in negative territory at -1.4%. Additionally, corporate bonds dipped 1.7% to finish February at -2.4%.

Markus Stadlmann, chief investment officer at Lloyds Private Bank, said: “For several months now, we have seen that investors in the UK continue to feel good about their prospects, with good investment conditions out there for those who know where to look.

“That said, you only need to consider current price fluctuations on equity markets around the globe to see the need for proactive risk management.”

Mixed fortunes for UK assets

Considering asset class performance over the last month, UK shares and government bonds faced the biggest decline, both returning -2%.

The report revealed that over a 12-month performance period, global equities took top place with returns for emerging market shares coming in at 38%, followed by US shares (23.9%) and Japanese shares (19.1%).

Meanwhile, US shares saw the biggest monthly jump in investor confidence out of all 11 asset classes surveyed, rising 7.8%, which the firm said reflected a similar uplift to January.

Aside from US shares and cash, UK property was still one of the favoured asset classes with the highest sentiment score since June 2017. It returned a score of 18.5%, up 3.8% compared to last month.

Investor sentiment in UK shares was also up by 2.5%, as well as eurozone shares by 1.8% and emerging market shares by 0.1%. Japanese shares saw a dip of -0.3%.

Stadlmann added: “Despite our sentiment tracker scores showing good results for global equities, we know that valuation metrics reveal a number of different scenarios developing in key economies.

“Sentiment may well have shifted since the fall of stock markets from grace this week, but it’s not something for investors to be overly concerned about. US equities – this month’s most improved asset class for popularity – have been showing as extremely expensive for some time. This is in contrast to China and Japan where equities continue to offer good value.

“We have been anticipating a correction in global equities markets for a while now, although the historic point plunge in the US took some investors by painful surprise.

“If there is a positive to take away from it, it would be that investors need not panic. Given the current condition of the global economy, we would expect this correction to last for a few weeks before being followed by a recovery.”

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