In Focus: Megatrends  

Investors shun FTSE 100 but 'buy dip' in US

Investors shun FTSE 100 but 'buy dip' in US
(Credit: Luke MacGregor/Bloomberg)

Recent volatility in markets has produced divergences in investor sentiment, with many turning their backs on the UK but feeling positive about buying the dip in the US, according to IG.

Research among clients trading on IG showed investors had felt positive about the UK's blue chip index in March, jumping at the opportunity to buy the dip following the beginning of the war in Ukraine.

But since then they have been less keen to buy into weakness, particularly as the index nears the previous highs of February and April, according to IG.

The FTSE 100 had reached a high of 7,672 points in February and 7,669 in April, and neared that level with 7,612 points last week (May 5).

As at market open on May 11, it stood at 7,243.22, having recovered somewhat on Tuesday May 10 following a steady slide in the days before. 

The index is down 3.33 per cent year to date and up 1.85 per cent over the year.

The S&P 500, in contrast, is down 16.79 per cent year to date, while the Dow Jones is down 11.86 per cent, and 7.19 per cent over the past year.

IG Group's chief market analyst Chris Beauchamp said: "For a while, it seemed that the FTSE 100’s time to shine appeared to have come, especially since the index has only a small weighting towards high-valuation growth names.

"Clients enthusiastically bought the dip in March, jumping on the chance to snap up a temporary weakness in the general risk-off move in markets following the beginning of the war in Ukraine.

"Since then, clients have been less keen to buy into weakness, particularly as the index nears the previous highs of February and April.

 

"It is a very different situation for the Dow and S&P 500. Here, clients have been much keener to ‘buy the dip’; a hardened reflex over the past decade and more."

He said dips towards 32,000 in February and April had brought out the buyers, who remained persuaded by a better outlook for the US economy and the still-powerful cash generation abilities of the big tech names found in US indices.

Paul Gibson, managing director and a chartered financial planner at Granite Financial Planning, said it made sense to invest globally to diversify.

He said: “Many clients have no idea what their UK exposure is as they are in invested in managed or mixed funds.

"As the UK represents circa 4 per cent of market capitalisation it makes sense from a diversification perspective to invest globally and not have too significant a home bias.”

 

When it comes to European indices, IG found the German index Dax was "neutral" in terms of investor sentiment.

Beauchamp said: "Clients bought the dip in March (as they did for the FTSE 100 and US indices), but subsequent lacklustre performance - and concerns about how the Ukraine war will hit the European economy - mean that weakness here has not been the cue for enthusiastic buying.