Investor sentiment has fallen to its lowest level this year, dropping by 3.7%, from 6.29% to 2.59% in July. However, overall sentiment is up 7.34% since July last year when it hit record lows immediately following the EU referendum.
Eight out of 11 asset classes saw a fall in sentiment in July, with UK asset classes in particular losing favour among investors. UK equities were the biggest faller with a 10.75% decline, falling from 13.5% to 2.75%. This drop happened in the period following the UK general election and in the midst of continuing negotiations on the UK exiting the EU. UK bonds were the second biggest faller dropping 8.72% from -1.05% to -9.77%.
Although overall investor confidence fell in July, Japanese equities and commodities did see a minor upturn in popularity with an increase of 0.59%.
Despite a subdued July, UK property and UK equities are still amongst the best performers over the past year. UK property has seen an increase in sentiment of 19.97% since 2016, closely followed by UK equities which experienced an 18.04% rise over the same period. They were only eclipsed by Eurozone equities which rebounded by a considerable 35.71% in 12 months. Overall gold is still the most popular asset class even though it saw the biggest reduction in confidence over the past year, experiencing a fall of 17.24%.
Asset class performance paints a similar picture and largely mirrored sentiment over the last month. Only three asset classes, Japanese equities (2.4%), US equities (0.5%), and cash (0%) were in positive or neutral territory. As with investor sentiment, UK equities also saw a dip in performance however this was more modest than the reduction in confidence.
Markus Stadlmann, Chief Investment Officer at Lloyds Private Banking, says:
“After the highs come the lows, and it appears that investors are feeling less confident following the UK General Election. In May, we saw investor sentiment reaching levels not recorded since April 2016, but this month’s sharp decline – particularly towards UK assets – suggests that the election outcome and ensuing political dynamics have caused uncertainty in the markets.
“A reversal of bond market trends wasn't helpful either. In the UK and elsewhere, markets have been very sensitive to perceived changes in communication by monetary policy makers. Whilst we do not expect the end of asset purchases by central banks alone to cause an unmanageable fall in bond prices, investors are rightly concerned. There are several other factors to consider when assessing the future development of global sovereign bond yields, most importantly the growth and inflation outlook, as well as financing requirements. When looking closely at these factors, none of them makes the fixed interest outlook any brighter.
“Finally, the fall in sentiment towards Gold is not overly surprising. We anticipate that it will struggle over the next year, dented by rising interest rates after inflation and a strengthening US dollar.”