Investor sentiment has fallen to its lowest point in two and a half years, according to Lloyds Investor Sentiment Index.
The index, released today (16 February) shows how sentiment has taken a significant hit following 2016’s turbulent start.
Actual market performance of most asset classes dropped again this month, leading to the lowest level of investor sentiment since May 2013, dropping by over six percentage points (a 6.88 per cent reduction) in the past month to a level of 6.38 per cent.
The UK isn’t the only country to experience investor depression, however, with US equities experiencing a similar dip in sentiment, falling by 6.59 per cent during the month to -0.8 per cent; the lowest level since November 2013.
Both UK and US equities also experienced their biggest ever year-on-year falls in February, with sentiment towards these two asset classes plummeting by 22.73 per cent and 18.31 per cent respectively.
Markus Stadlmann, chief investment officer at Lloyds Bank Private Banking, warned investors against panicking, suggesting that this is a time for calm heads and careful research.
“As the trend of ‘growth’ investing dissipates, we may now be entering a period where investors have a preference for sectors with more predictable earnings. Now more than ever, identifying buying opportunities in the equity market requires a deep understanding of company valuations and how markets work.”
Mr Stadlmann adds that to counteract the risk, investors have been moving their attention towards lower risk assets such as government bonds, which have seen performance improve over the last month.
“This asset class has experienced a 3.4 per cent improvement in value over the past six months, making it the top-performing asset class over this period. However, investor sentiment has not reflected this, with confidence in government bonds dropping by 3.87 per cent this month, following a fall of 4.08 per cent in January.”
Andrew Wilson, head of investment at Towry, said the surprise is not that optimism has been tempered, but that it was previously high for so long.
“Clearly a belief in the omnipotence of central banks persisted, although it is now obvious to most market participants that stock markets struggle to progress in the absence of QE from the Federal Reserve.”
It’s not all doom and gloom though, with gold being the stand-out performer when looking at actual market returns, something reflected in investor sentiment rising by 8.57 per cent over the month.
In 2016, gold has overtaken UK equities as the second-most favourable asset class behind UK property.
