Sentiment towards UK equities is now at its lowest level since the Index began in March 2013, dropping from 13.26% in January 2016 to 6.38% in February 2016 – a drop of more than six percentage points.
US equities experienced a similar dip in sentiment, falling from 5.79% in January to -0.80% in February, recording 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 percentage points (pp) and 18.31pp, respectively.
When the actual market performance of equities is analysed, it is easy to see why sentiment has fallen as far. UK, Eurozone, US, Japanese and emerging market equities all saw their performance fall between 5.8pp and 8.6pp in the past month.
"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."
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.”
All that glitters
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.
