Private investment in equities falls to near record low

According to the latest Private Investor Watch from Capita Registrars, share sales combined with falling share prices meant that by 15 December private investors held £118bn in equity portfolios.

In value terms, UK private investors have only owned less in 1981, 1979 and 1974, after adjusting for inflation.

By contrast, 1968 was the peak year ever for private investors. The value of their shares that year in today's prices was £473bn, exactly four times as much as today, and their share of the stockmarket was a staggering 49 per cent.

Michael Kempe, operations director of Capita Registrars, said: "Never in modern times has share owning been less fashionable. The combination of falling share prices and the long-term trend by private investors to reduce their holdings has seen 2008 end on a whimper. 

"2009 could well see this trend reverse, at least in the short term. We are seeing signs private investors are prepared to dip into the market again. 

"By the time the economic news hits rock bottom, share prices will already have started their upswing."

The grip of the bear market did not spur private investors to sell in large volume in 2008, as most of the preparation for this event took place in 2007. 

In 2008 as a whole, private shareholders traded a total of £7.2bn, but only sold a net £42m of their shares. 

This is a fraction of their 2007 activity, when they traded over £14bn, reducing their portfolios by a net £4.9bn, concentrating their sales on cyclically vulnerable financials and commodity stocks and their purchases on relatively more stable utilities and telecoms shares.

Notwithstanding the long-term trend of selling direct equity holdings, private investors turned net buyers in October and November to the tune of £645m, the first time they ventured back into the market since February 2008.

The AllShare Index fell 14.1 per cent in the period, but was extremely volatile, twice falling and then rising by almost 20 per cent.

Kempe said: "Normally private investors shun volatile markets - they have been sitting on the sidelines for much of the past year. But it seems the lows of October and November proved irresistible to many and they dipped their toes back in, perhaps hoping to make some trading profits in time for Christmas. 

"If you were clever and timed your buying and selling perfectly you could have made almost 50 per cent returns in the last two months.

"2009 should see market conditions improve, but it seems too early to call a bottom just yet– the recent upswings have all the characteristics of bear market rallies and have soon petered out."