Lloyds Private Bank released its investor sentiment index for April, and it seems the trade row between China and the US is souring the mood of UK investors.

US investors have turned more downbeat on US equities because of worries about rising protectionism noises between the US and China. A Lloyds Private Bank measure of investment mood for April showed sentiment on US stocks slid by 12.2 per cent month-on-month to minus 2.3 per cent. This is the largest monthly fall since 2013.

Fears of a trade war between the US and China have escalated, and markets have become volatile; the US is proposing to slap tariffs on hundreds of Chinese products. China said it will retaliate with tariffs on various US items.

According to Lloyds PB, US equities were down 2.4 per cent although they were still 11.7 per cent higher than a year before. Despite the escalating trade row, sentiment toward emerging market shares, which include those of China, remained positive at 20.2 per cent. This remained the highest amongst global equities.

UK equities
UK shares saw the second largest drop in sentiment, falling 5.0 per cent to 0.6 per cent.  Brexit uncertainty continues to cloud the outlook for UK shares. UK government bonds saw an increase in positive sentiment (up 2.6 per cent). Lloyds PB said that gilts benefited from a “flight to safety amid market turbulence since the start of the year”. 

Japan
Sentiment towards Japanese equities declined by 2.6 per cent in April, mirroring the 2.7 per cent drop in Japanese equities. 

Overall sentiment towards Japanese investments remained positive at 11.1 per cent. Lloyds PB said Japan is a good area of investment, as the Japanese economy is in robust health and Japanese companies are beginning to return more of their earnings to shareholders.

“The current political backdrop is unsurprisingly impacting on global equity markets,” said Markus Stadlmann, chief investment at Lloyds Bank Private Banking. “A fall in sentiment reflects investor concerns about the impact of a trade dispute between the world’s two largest economies, the United States and China. This uncertainty has caused a repeat of the correction we saw in February and a flight to safety causing bond prices to stabilise following declines earlier in 2018. However we believe this stabilisation will only be temporary and the outlook for bonds moving forward remains bearish.”

Stadlmann added: “Despite this, most of the world’s economies are experiencing good growth than we have seen since the financial crisis of 2008.The recent correction has led to lower share prices, leading to some attractive opportunities for long term investors in equity markets and inflation continues to grow modestly in most developed nations; subsequently the overall sentiment remains positive."

Source: Lloyds Private Bank  Table 1: Net Sentiment