Mood among investors on the turn as confidence in major markets slides this year - but faith in UK property remains resilient
By Marc Shoffman for www.Thisismoney.co.uk
Assets: Investors were positive about UK shares, but US and Emerging markets have performed better
The mood among investors could be on the turn after a year in which major global stock markets touched record highs as a survey showed confidence about a range of risky assets slipping.
The latest Investor Sentiment Index from Lloyds shows investors have become less positive about shares and property in the past year, while more expect safe-havens such as gold to see price rises.
2014 has been unusually disruptive for markets. The year started with concerns about early interest rates rises and worries about property bubbles and inflation.
Crises in the Middle East, the ebola outbreak, slow eurozone growth, falling oil prices and tensions between Russia and Ukraine have all weighed against on markets.
But at the same, time business confidence has improved in major western economies and unemployment has fallen in the UK and US, while the property market here has also woken up.
This made it hard for investors to know whether they should be going for growth with shares or opting for more defensive assets.
Lloyds Bank assesses the investing mood each month by seeing which asset classes are most popular.
Its Private Banking Investor Sentiment Index, shown below, creates a net percentage score based on more than 1,000 people investing in funds and shares by asking if they are more positive or negative about a particular asset class.
The percentage score is the difference between those who hold a positive view and those who hold a negative view on the outlook for each type of investment over the next six months,
The index shows confidence in global shares peaking in April and May before slipping back during the second half of the year. Meanwhile, confidence in supposedly safer assets such as bonds and gold has increased.
Even the irrepressible UK property market has seen confidence in it ebb away as the year has gone on.
|UK Gov't bonds||1||8||9||9||14||15||12||11||12||8||13||12||7|
|UK Corp bonds||9||12||11||12||17||17||16||10||10||8||14||10||9|
|Emerging market shares||23||19||14||18||15||19||17||18||11||16||16||12||16|
The UK economy got back to growth this year and saw unemployment fall.
But there are still dangers associated with interest rate rises and questions over how the deficit will be dealt with.
Both these elements will create uncertainty in 2015, as well as the upcoming general election.
Net positive sentiment towards UK shares edged to 27 per cent at the end of December, although down from 35 per cent last year and 44 per cent in May.
The FTSE 100 has flirted with the 7,000 barrier this year, but suffered a blip in October.
Meanwhile, the IMA UK All Companies sector saw a 2.8 per cent increase this year and 61.5 per cent growth over five years, on a total return basis.
If you had money in a UK equity income fund, the sector has returned 2.4 per cent in the 12 months to October 2014, and 108 per cent over five years.
Gold is traditionally seen as a defensive asset for when times are tough. But markets have been mainly buoyant throughout the year, keeping the price low by recent standards.
The gold price has fallen around 2 per cent in the past year to $1,224 an ounce.
The Lloyds study suggests more people are uncertain about the economy and are looking to the metal as a safe investment.
The asset has a net score of 23 per cent for December, the third highest reading, up from 17 per cent in December 2013.
It has been another tough year for the eurozone as inflation fell to its lowest level since the downturn of 2009.
Expectations of more quantitative easing have failed to materialise and falling oil prices and business confidence have all hurt the currency bloc.
Yet often where there is volatility there is buying opportunity for those who have done their research and are prepared to take a bit of risk.
Faith in eurozone shares rose by the most of any asset, month-on-month, with its net positive score increasing eight percentage points.
However, the asset class still sits at a net negative 37 per cent
This year the IMA Europe excluding UK sector lost 2.3 per cent.
The US economy has performed well this year, with the Dow Jones reaching record levels and business and employment data remaining mostly positive.
But analysts are split on how long this can last, particularly with the end of quantitative easing and the prospect of rising interest rates.
The region had an investor sentiment score of 8 per cent, up from 3 per cent a tear ago.
Investor confidence follows the IMA North American sector posting the highest one-year return of all the sectors of 13 per cent in the year up to October 2014 and 117.5 per cent over five years.
Meanwhile, the S&P 500 is up 12.5 per cent in the year up to the start of December.
Japan has undergone a resurgence in 2014 thanks to drastic economic reforms by its prime minister Shinzo Abe.
So-called Abenomics involves a 'three arrow' approach - a big government spending package, the targeting of a 2 per cent inflation rate through a massive money printing scheme, and a programme of business reforms.
However, the outcome of a snap election on 14 December could change the course of the economy.
Investors' uncertainty in this region was reflected in sentiment towards the Japanese shares asset class dropping to -19 per cent in December.
Investors were far more positive about Japan last year, with a score of 8 per cent per cent in December 2013.
Japan funds have had a tough year with the sector returning just 2 per cent this year, while it has returned 45.4 per cent over five years, among the lowest returns for an equity asset class.
The Nikkei 225 has fared better, increasing 12.5 per cent in the year up to December, suggesting you may have done better with a tracker or direct shares.
Concerns about growth in the big emerging markets of China and Brazil and tensions between Russia and Ukraine have hit investor sentiment this year.
But other markets are doing well, such as India, which has been boosted by economic reforms. Investors have also been looking away from the traditional Bric countries (Brazil, Russia, India and China) towards Mint economies (Mexico, Indonesia, Nigeria and Turkey).
Investor sentiment toward emerging markets has risen from 12 to 16 per cent between November and December 2014, but is down from 23 per cent a year ago.
The IMA Global Emerging Markets sector has grown 3 per cent this year and 14.4 per cent over five years.
The UK property market has been boosted during 2014 by government initiatives such as the Help to Buy mortgage guarantee scheme and more recently the reforms to stamp duty charges.
Property enjoys the most investor confidence of any sector, according to the Lloyds index, with a score of 42 per cent, the highest among all the asset classes.
However, this is down from 46 per cent in December 2013, and it was as high as 60 per cent in May this year.
Property investors and buy-to-let landlords may have been well rewarded so far this year.
The FTSE UK Commercial Property Index has risen from 5,600p to almost 7,000p over the past year
Property was the third best-selling asset class in October with net retail sales of £274 million, having been the top-selling in September.
The IMA Property Sector returned 13.4 per cent this year and 44.9 per cent over five years.
But there are risks in this sector as house price rises have already begun to slow as have enquiries for new sales amid worries about low wage inflation and an interest rate rise that could hit people’s finances.
According to Nationwide, annual house price growth slowed to 8.5 per cent in November.