- The last month has seen increasing stability in China and less uncertainty behind the US Federal Reserve’s recent decision to hold interest rates
- Investor sentiment improves on all asset classes, except UK property
- Actual market performance shows Japanese equities were the top performing asset last month, with over 10% growth since October
November saw further growth in investor confidence on the back of increased optimism in the market, according to the latest Lloyds Bank Private Banking Investor Sentiment Index. Investor sentiment towards emerging market equities, Japanese equities and commodities all jumped significantly in the last month, increasing overall investor confidence by four percentage points (4pp), taking the average over all asset classes this month to 11%, the highest point since August.
Recent weeks have seen increased stability in China, enabling very strong returns for investors. This has largely been driven by policy interventions by the Chinese Central Bank, who combined interest rate cuts with reductions in banks’ reserve-requirement ratios, to lower corporate financing costs and pump liquidity into the economy.
The greatest improvements in sentiment in November were towards commodities (9pp) emerging market equities (8pp) and Japanese equities (7pp) (see chart 1). With China being such a huge consumer of commodities, there is little surprise to see this asset class rebounding in line with China’s improvements.
Investor sentiment was also lifted considerably by the US Federal Reserve explaining that their decision to hold interest rates at current levels was due to global weakening of growth, rather than any inherent problems with the US economy. This helped to improve sentiment across the board, but also helped to push the second month-on-month improvement in US equities.
This month, UK property was the only asset class to see a reduction in sentiment. However, even this reduction was marginal at -0.84pp, and is perhaps reflective of the perception that the market slows after the busier summer months.
Ashish Misra, Head of Portfolio Specialists at Lloyds Bank Private Banking, said:
“It is encouraging to see increasing investor sentiment this month, which is mainly thanks to more stability and less uncertainty in the big global economies of the US, the Eurozone, China and Japan. Positive policy interventions from central banks are helping to provide strong performances for many asset classes at the moment.
“As a result, potential performance seems to be in a relatively positive place looking ahead towards the end of the year. However, the currently ongoing third-quarter results season has returned focus onto earnings growth and expectations. How these expectations evolve in the short-term will have an impact on how sustainable any continued improvements will be.”
Asset Class Performance
This month, actual market returns have been very strong for equities in the big global economies of the US, the UK, the Eurozone, emerging markets and Japan (see table 2). Only UK Government bonds and UK corporate bonds performed worse than the previous month, with both showing small month-on-month reductions.
Year-on-year, most asset classes are now in a relatively similar position to 12 months earlier. The most notable exceptions are UK property (+21%) and Japanese equities (+17%) which have both seen excellent returns over this time. However at the other end of the scale, commodities have seen a 38% decline. However, with China now seeing some grounds for optimism, this may help commodities to recover in the coming months.