Sentiment toward equities drops sharply in 2017, research shows

By Sam Shaw

Added 15th February 2017

Investor confidence in the stock market has halved in the past two years due to the joint impact of political uncertainty and low interest rates, according to research from the UK's Association of Investment Companies (AIC).

Sentiment toward equities drops sharply in 2017, research shows

While 25% of active investors planned to increase their stock market exposure over the coming six months – consistent with a year ago - two years ago, 49% gave the same response.

Investors appear cautious, with 71% planning to hold their existing investments rather than buy in, although the number of those selling has halved, from 8% to 4% in the past year.

Brexit-related uncertainty, a stock market crash and Donald Trump’s presidency were cited as the top three causes for concern, by 18%, 13% and 12% of those surveyed, respectively. Low interest rates and rising inflation followed, cited by 9% and 8% of respondents.

Conversely, low interest on cash deposits was the primary motivator for those looking to increase their stock market exposure, with 30% claiming that to be their rationale.

The number of people deciding to not take advantage of their Isa allowance has almost doubled, from 21% last year to 38% this year.

Regionally, investors remain domestically focused, with 21% of active investors favouring the UK, despite the uncertain outcome of the UK’s departure from the European Union (EU).

Emerging markets at 9%, China with 7%, North America and Asia Pacific ex-China and Japan with 6% each.

At sector level, technology is topping the list for the first time with 15% of investors backing the sector and pharmaceuticals’ 9%. Smaller companies have fallen out of favour, dropping from the top stop last year with 22% to third place today, with just 7%.

Annabel Brodie-Smith, communications director at the AIC, is calling on investors to remember the basics of a well-diversified portfolio and taking a long-term view as she says the average investment company is up over 107% over 10 years.

She said: “With Brexit concerns, the Trump presidency and worry over a market crash hanging heavy in many investors’ minds, it is perhaps easy to see why investors remain cautious.

“However, none of us can predict the markets’ next move and who would have thought, at the start of 2016, that markets would have had such a strong year?”

The survey of 1,004 active investors took place at the end of January 2017 and was conducted by Opinium Research.

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