Investors believe that the UK will outperform both Europe and the US in 2019, despite the fact that the country risks crashing out of the EU, a study published by investment firm Charles Schwab has found.
The survey, conducted by YouGov, represents the views of 201 direct investors in the UK who have at least £25,000 ($32,158, €27,774) of disposable assets.
Respondents were overwhelmingly positive about the general outlook for global stock markets in the next 12 months, with 72% identifying as optimistic and only 13% saying they were pessimistic.
But they were the most bullish about the UK market’s prospects. Around 71% of investors said they expect the UK equity market to outperform over the next one to three years, compared with 66% and 65% who believe Europe (ex UK) and the US will outperform in the same time frame.
Home bias more pronounced in UK
Although respondents were polled in April when the prospect of a no-deal Brexit looked less likely than it does now, Charles Schwab vice president Kully Samra said the findings reveal UK investors have a “particularly pronounced” home bias.
“Home bias is a universal phenomenon, but our research suggests it is particularly pronounced in the UK,” said Samra.
“There are many reasons why this might be the case. A large part of asset allocation involves assessing how to maximise returns whilst mitigating risk. If investors feel comfortable and familiar with their home market, they are more likely to invest in it, even if this decision results in a less profitable, higher risk/return trade-off for their portfolio compared to investing in other markets.”
When asked which market they intend to make most of their investments in for 2018, 74% of investors picked the UK, their home market. Seven percent said they were looking to make a significant investment to the US, while 5% and 2% said they were planning on investing heavily in Japan and China. Twelve percent were unsure.
“The fact that nearly one in ten investors did not know or were unsure of their favoured markets demonstrates how little investors are considering foreign equities compared to their own,” said Samra.
British investors turned-off by Trump
The survey also found that UK investors are more turned-off by president Trump than by Brexit.
Sixty percent of investors who were polled said they were put off from investing in the US because of the political situation in Washington. Meanwhile 58% of respondents said they were staying away because of geopolitical tensions and 55% because of high valuations.
Although 59% of investors said they were considering diversifying away from the UK in the short-term because of Brexit, 57% said divorcing the EU would be better for the domestic stock market in the long-term.
Samra said UK investors’ home bias could be preventing them from making the most of their returns.
“The S&P 500 has by far outperformed the FTSE 100 over the last few years, so this UK favouritism demonstrates how UK investors are actually weakening their portfolios and cutting themselves off from potentially superior returns,” he said.
“There are many other compelling arguments in favour of diversification and US market should not be overlooked. It provides a great choice of assets in which to invest, access to transparent and liquid markets, as well as the benefits of robust regulation – all of which help to mitigate risk and maximise returns.”
