Investor sentiment falls further in February to lowest point in over two and a half years

17 February 2016

  • Investor sentiment drops to its lowest level since May 2013.

  • Sentiment towards UK equities falls to lowest level since the Index started in March 2013.

  • Positivity towards gold soars as the actual market performance of the asset also increases in February.

This month’s Lloyds Bank Private Banking Investor Sentiment Index shows how investor sentiment has taken a significant hit following the turbulent start to 2016. With ongoing market turbulence, the actual market performance of most asset classes dropped again this month. As a result, overall investor sentiment has fallen to its lowest level since May 2013 (2.98%, see table 1).

Sentiment towards UK equities is now at its lowest level since the Index began in March 2013, dropping by over six percentage points (a 6.88% reduction) in the past month to a level of 6.38%.

US equities experienced a similar dip in sentiment, falling by 6.59% during the month to -0.80%, their 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% and 18.31% respectively.

When the actual market performance of equities is analysed, it is easy to see why sentiment has fallen so far. UK, eurozone, US, Japanese and emerging market equities all saw their performance fall between 5.8% and 8.6% in the past month. See table 2.

There is a similarly negative picture when comparing recent actual performance with that of six-months earlier; there were falls of between 9.3% (UK equities) and 14.3% (emerging market equities).

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

“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.

“What’s more, both the understanding of risk, and the appetite for it have changed. It is notable that some investors seem to be adopting an increasingly negative attitude even towards lower risk assets, such as government bonds, which have seen performance improve in the last month. This shows the current levels of uncertainty among investors.”

Gold has been the stand-out performer when looking at actual market returns, and this has been reflected in investor sentiment rising by 8.57% over the month. In 2016, gold has over-taken UK equities as the second-most favourable asset class behind UK property.

The other positive actual market performance change over the past month was in government bonds, which improved by 2.2%. This asset class has experienced a 3.4% 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% this month, following a fall of 4.08% in January.