A study of investor sentiment by the private banking arm of Lloyds Banking Group shows that the glum mood of late last year hasn’t yet lifted.

Investor sentiment has reached a new low of -8.4 per cent following the biggest year-on-year fall on record (of 20.7 per cent), according to research by Lloyds Bank Private Banking.

The bank’s latest Investor Sentiment Index shows that the biggest loss of confidence in January is in US shares – down by 23.4 per cent – overtaking UK assets which saw the biggest fall last month. With the murmurs of a US recession growing louder, this is the largest month-on-month drop on record, reaching the asset class’s lowest level since the index began in 2013.

“In the early weeks of 2019, equity and commodity markets are walking on feet of clay. The hefty price fluctuations since October 2018 and the fall in oil prices have wreaked havoc on investor sentiment, leaving some confused,” Markus Stadlmann, chief investment officer at Lloyds Bank Private Banking, said. 

“There is some help on the way. Market action and liquidity injections by central banks have begun during recent weeks, led by the People’s Bank of China. Fed chair, Jerome Powell, indicated a moderation of interest rate hikes and the government of China has facilitated an increase in infrastructure spending in a bid to help turn around national income. Investors should feel reassured by these moves to aid the potential return of global economic stability and growth,” he added.

The mood has been hit by uncertainties about what sort of exit the UK will achieve from the European Union, coupled with concerns about US-China protectionism, rising US interest rates and the fact that the global stock bull market cycle is in its latter stages.

Confidence in UK shares dropped by 2.1 per cent from -27.1 per cent in last month’s research and surpassing December 2018’s record low. Since January 2018, sentiment for UK shares has dropped by 41.5 per cent. UK corporate bonds have also reached a new all-time low, falling a further 2.6 per cent in sentiment compared with last month.

Optimism in UK property has recovered slightly, bouncing back from the record low of -21.7 per cent last month, with an increase of 4.7 per cent. Despite this, the research shows that confidence is still 31.7 per cent down on this time last year.

Downward slope

Rest of the world
It is not only the US and UK markets that have seen a decline in sentiment this month, as confidence in the outlook for eurozone shares has also fallen, by 9.7 per cent. Sentiment towards Japanese shares has fallen by 8 per cent and emerging market shares confidence has dipped by 3.2 per cent.

UK asset classes continue to perform ahead of international shares

Looking at performance, the only increase in value since last month is from UK government bonds (+0.8 per cent), UK corporate bonds (+0.7 per cent), gold (+4.5 per cent) and cash (+0.1 per cent). Despite the slight uptick in investor sentiment towards UK property this month, its value remains 20.3 per cent lower than January 2018. Even gold, which can be perceived as a safe haven asset - which has seen sentiment increase by 8.9 per cent compared with last year - has actually fallen in value over the last 12 months, declining by 2.7 per cent.

All figures, unless otherwise stated, are from YouGov. Total sample size was 4,278 adults, of which 1,089 were investors.