Ashish Misra, Lloyds Bank Private Banking
May has seen the largest fall in sentiment towards UK asset classes since November 2014, according to the monthly Lloyds Bank Private Banking Investor Sentiment Index. With eight out of ten asset classes recording a drop in investor sentiment, UK shares saw the biggest decline, falling 11 percentage points (-11pp) from April to 26%.
UK government bonds saw the second biggest decline in sentiment towards UK asset classes to 12%, a monthly decrease of 4pp. International shares, on the other hand, remain strong with Eurozone shares and Japanese shares reporting the only increases. Eurozone shares recorded the largest improvement for the third consecutive month of over 5pp, but the net balance still remains in negative territory (-23%).
Despite large declines, net sentiment remains strongest for UK property at 47%, while UK shares also remains strong at 26%.
However, market returns show four asset classes performing well in the past month. In contrast to waning sentiment for eight asset classes, market performance, in terms of returns earned, increased for four of the ten asset classes. Commodities saw the largest monthly increase in returns of 8%, a significant shift for the asset class, which could have been helped by the recent rise of crude oil prices. This was followed by Japanese shares and Emerging market shares both sitting at 1%. Their performance against a negative UK result could be on account of a halo effect on contiguous asset classes arising from the political and economic uncertainty of a general election in early May.
“The results paint an interesting picture as a snapshot for UK asset classes. Having recorded their worst performance since November 2014 across all asset classes, the results show investor unease due to potential economic and post- election uncertainty in the UK in May,” said Ashish Misra at Lloyds Bank Private Banking.
“However, Eurozone shares and Japanese shares have displayed positive performances and have gained from the halo effect arising around the outcome of elections in the UK. With continued significant improvement in net sentiment scores for Eurozone shares, the asset class could be the one to watch out for with a potential to extend and sustain the current upward trend in the coming months, unless it hits an unexpected stumbling block.”
Ashish Misra, Lloyds Bank Private Banking
March saw an overall average asset class sentiment reach a high, according to the monthly Lloyds Bank Private Banking Investor Sentiment Index. With continued improvement in overall asset class sentiment, net sentiment increased for seven of the ten asset classes surveyed with only a modest decline for the other three, leading to its highest overall score since June 2014.
However, in contrast to asset class sentiment, actual asset class performance decreased for nine out of the ten asset classes since last April.
Despite receiving the most negative sentiment of all asset classes (-33%), Eurozone shares recorded the largest positive month-on-month gain for the first time. With net sentiment increasing 13 percentage points, Eurozone shares also saw the highest increase for the asset class since the survey began in March 2013.
Ashish Misra at Lloyds Bank Private Banking, said: “The continued improvement in asset class performance paints a positive outlook for investors. Most notable is Eurozone shares, which has gained significant momentum, despite still displaying a highly negative sentiment. This could reflect the improvement in sentiment on account of the commencement of quantitative easing by the European Central Bank and some improvement in the overall macro-economic backdrop for the region despite ongoing challenges in the periphery.”
Gold was the biggest net loser in March, dropping 5 percentage points compared with February and saw its first negative swing since the start of the year.
Three out of the four sterling-denominated asset classes recorded a positive performance with UK shares rising 7 percentage points, UK corporate bonds rising 4 percentage points and UK government bonds rising 1 percentage points. UK property saw a 3 percentage points fall in sentiment, signalling its second dip this year.
In terms of an annual change, six of the asset classes recorded an increase, with Japanese shares (+28%), UK property (+17%) and UK government bonds (+10%) seeing the largest increases. Commodities (-38%), Gold (-16%) and Eurozone shares (-9%) were the worst performers.
All of the four sterling-denominated classes saw an increase in terms of annual change with UK corporate bonds and UK shares seeing an increase of 7% and 2% respectively.
