February marks the fifth month in a row in which sentiment improves.
Ongoing financial market correction will most likely make investors cool on a range of asset classes.
Mixed results for UK assets overall, although good news for property.
UK investors continue to feel good about global investment opportunities, returning an improved overall sentiment score of 10.9% for February, according to the latest investor sentiment index (ISI) from Lloyds Private Bank.
While the score is likely to have moved since the start of the month in light of the fast-paced correction on global stock markets last week, it represents an increase of +1.9% compared to January, and +4.8% since this time last year. It also comes on the back of four consecutive month-on-month rises, with 2018’s two sentiment readings both outscoring anything seen in 2017.
Equities proving to be alluring, again
U.S. shares saw the biggest monthly jump in investor confidence out of all eleven asset classes surveyed. The rise of 7.8% echoes a similar uplift recorded in January, and there were further improvements for UK shares (+2.5%), Eurozone shares (+1.8%) and Emerging Market shares (+0.1%). Conversely, there was a small dip in popularity for Japanese shares (-0.3%) which goes against the current favourable in-house view of Lloyds Private Bank. Japanese shares still offer good value for money and are holding up well in the eye of the storm.
Mixed fortunes for UK assets
Unfortunately February was a poor month for both UK government bonds and UK corporate bonds, as last month’s improvements were wiped out, leaving them as February’s biggest losers. Popularity in UK government bonds – also known as Gilts - fell by 1.8% and put sentiment back in negative territory at -1.4%. Similarly, corporate bonds dipped 1.7% to finish February at -2.4%.
On the flip side, UK property continued to re-establish itself as one of the more favoured asset classes. You have to go back to June 2017 to find a sentiment score that was higher than this month’s score of 18.5% which is up 3.8% compared to last month.
Asset class performance
With regard to asset class performance, tracking over a 12 month time period shows global equities at the top, led by emerging market shares on 38.0%, then US shares on 23.9%, followed by Japanese shares on 19.1%. Over the same time horizon and aside from cash, the three worst performing assets were all UK-based. The biggest improvement this month was seen in emerging market shares (+8.3%), while the biggest decline was jointly held by UK shares and UK government bonds (both returning -2.0%).
Markus Stadlmann, Chief Investment Officer at Lloyds Private Bank said:
“Despite our sentiment tracker scores showing good results for global equities, we know that valuation metrics reveal a number of different scenarios developing in key economies. Sentiment may well have shifted since the fall of stock markets from grace this week, but it’s not something for investors to be overly concerned about. US equities - this month’s most improved asset class for popularity - have been showing as extremely expensive for some time. This is in contrast to China and Japan where equities continue to offer good value.
"We have been anticipating a correction in global equities markets for a while now, although the historic point plunge in the U.S. took some investors by painful surprise. If there is a positive to take away from it, it would be that investors need not panic. Given the current condition of the global economy, we would expect this correction to last for a few weeks before being followed by a recovery.
"For several months now, we have seen that investors in the UK continue to feel good about their prospects, with good investment conditions out there for those who know where to look. That said, you only need to consider current price fluctuations on equity markets around the globe to see the need for proactive risk management.”