Lloyds Private Bank has released the investor sentiment index for January 2018, which shows UK sentiment has risen for fourth month in a row, and UK assets are on the up as well.

UK investor sentiment increased for the fourth month in a row in January, up by 2.5 per cent since December last year, according to the latest investor sentiment index (ISI) from Lloyds Private Bank. 

Overall sentiment now sits at 9.0 per cent, marking an increase of 3.3 per cent compared to this time last year.

After a topsy-turvy year in 2017 which saw the sentiment tracker rising and dipping amidst an uncertain geopolitical climate, January 2018’s sentiment score hits it’s highest since May 2017 (6.7 per cent).

UK assets bounce back
Confidence in UK shares has seen the largest improvement in January, rising by 8.5 per cent to 12.3 per cent - a high not seen since last summer (13.5 per cent in June 2017). They are closely followed in second place by US equities which jumped 6.3 per cent since last month.

There is more good news for domestic assets with investor confidence in UK government bonds and UK corporate bonds both increasing by 2.9 per cent. This is encouraging for UK government bonds which crossed back into positive sentiment (0.4 per cent), signalling a good turnaround from the last 10 months. Scores during this time for the asset class were uniquely negative, dipping as low as -9.8 per cent in July 2017.

International equities
Investors have warmed more to international shares. January sees improvements across the board with increases for eurozone shares (2.2 per cent), US shares (6.3 per cent), Japanese shares (3.0 per cent) and emerging market shares (4.4 per cent).

With regards to asset class performance, the 12 month time period shows emerging market equities as the standout performer (34.3 per cent compared to January 2017), followed by US shares (19.4 per cent) and Japanese shares (18.1 per cent). 

Through month-on-month comparisons, UK shares had the biggest improvement (4.7 per cent vs. December 2017). Emerging market shares increased 3.4 per cent for the month, followed by Japanese equities at 1.2 per cent.

“There are two interesting angles playing out in this month’s findings,” said Markus Stadlmann, chief investment officer at Lloyds Private Bank. “The first is the month-on-month score surge which takes overall sentiment in January above anything we saw in 2017.The second angle comes from the differences we see when comparing sentiment, performance and valuation. Although UK and US shares both scored highest this month for sentiment, we see contrasting valuation scores between the two. In our view, despite some good growth signals emerging from the US where tax cuts should further support corporate growth in 2018, we currently think US equities are expensive. Conversely, we see UK equities – and also emerging market equities – as being cheap.”

Stadlmann added: “A final thought: Despite a mid-ranking performance score this month, Japanese equities are our ‘one to watch’ in 2018. The Japanese economy is in rude health, with less support now required of the central bank. Tellingly, the profit margins of Japanese corporates as a percentage of revenues are currently higher than their previous peak in the 1980s."