Asset performance bounces back in April but investor sentiment still struggles

20 April 2016

  • Investor sentiment falls to another record low despite recovery in market performance of all but one of the asset classes

  • Investor sentiment on UK fixed income assets turns negative

  • Confidence in Japanese equities saw the biggest improvement in sentiment in April, up almost 8%

The latest figures from the Lloyds Bank Investor Sentiment Index show investor confidence has fallen to a record low for the second month in succession. This drop has occurred despite recoveries in the market performance of equity asset classes, property and commodities.

Investor confidence may have been impacted last month by the surprise news that the European Central Bank (ECB) cut its main interest rate to 0% from 0.05%. In addition the 2016 UK Budget indicated that the rate of growth of the UK economy is slowing, with the forecast for gross domestic product growth for 2016 being revised down to 2.0% from 2.4%.

Despite this negative sentiment, the data shows that there has been a rebound in the actual market performance of all but one of the asset classes, suggesting that once again broad sentiment lags behind the markets. UK government bonds were the only asset to see month-on-month declines in market performance (-0.7%). Other asset classes that outperformed changes in investor expectations last month included emerging market equities and commodities, both of which saw market performance rally (up 6.9% and 4.9% respectively), despite still retaining an ongoing negative perception from investors overall.

Markus Stadlmann, Chief Investment Officer at Lloyds Bank Private Banking, says:

“Whilst investors’ attitudes to UK equities improved notably this month, we have seen sentiment slip in other asset classes. This is led by attitudes towards domestic bonds going from positive to negative. Gold has certainly lost a little lustre, with a drop in positivity, and UK property has also been knocked down a little.

“We can see that investor sentiment does not simply follow market performance, but is influenced by a combination of market movements, economic news and behavioral biases. The perception of economic data is currently so depressed, meaning that small improvements or surprise changes in economic statistics, which are always closely followed, can have a huge positive impact, potentially disproportionately.”

UK government bonds and UK corporate bonds are the two biggest fallers when it comes to changes in monthly investor sentiment (-5.90% and -4.88% respectively). This is perhaps unsurprising, given ongoing uncertainty surrounding geo-political issues and the status of the UK’s current account deficit, which continues to widen.

Japanese equities saw the greatest positive change in attitude, jumping 7.94% this month, from -19.43% to -11.49%. This may be a delayed response following the Bank of Japan’s decision in early February to join other central banks in negative interest rate territory.