11th July 2016
The Hargreaves Lansdown Investor Confidence Index has suffered its sharpest monthly fall in 5 years, and now stands at its lowest level since May 2012.
The index is based on a survey of retail investors, which took place on 30th June, shortly after the EU referendum result, and measures their view of the UK stock market over the next three years.
The index fell from 92 points in May to 67 in June; the biggest one month percentage fall since June 2011. The index now stands at a four year low – in May 2012 it stood at a level of 61, as Greece looked like it might be on the brink of leaving the eurozone.
The change in the HL Investor Confidence Index mirrors recent surveys of consumers (from GfK) and businesses (from Lloyds and BDO), and paints a rather gloom-laden picture of prospects for the economy and stock market after the Brexit vote.
However all these surveys need to be kept in perspective, particularly as they all reflect attitudes in the immediate run up and aftermath of the referendum vote, which may well become moderated as time passes.
Laith Khalaf, Senior Analyst, Hargreaves Lansdown says: ‘The immediate response to Brexit appears to be a collapse in confidence, across investors, consumers and businesses. The dwindling faith in the UK’s future financial prospects has the potential to become a self-fulfilling prophecy, if companies and individuals start to assume a bunker mentality, and delay or cancel spending and investment.
Investors are naturally twitchy about what Brexit means for the future of the stock market in the coming months and years. However continued low interest rates will remain supportive of shares, not least because there is really nowhere else for investors to go for income. Commercial property is one other option, though we have seen problems that can arise for investors in that market over the last week or so.
We would also caution about assigning too much significance to one month’s survey data, particularly so close to the EU referendum result. Instant reaction to such a momentous decision is probably not an accurate barometer of more considered, longer term responses, which will ultimately impact on the stock market and the economy.
When evaluating confidence surveys we should therefore wait for a few more data points before establishing a trend, as it’s a particularly imprudent time to be extrapolating in straight lines.’
In regional terms, short term confidence (looking forward 12 months) has actually sunk fastest in Europe over the last month, followed by the UK. However, confidence has risen in all other markets, particularly Asia Pacific and Global Emerging Markets, but also in US and Japanese stock markets.
Investors remain most confident on the performance of US shares looking forward for the next 12 months. Confidence is still positive for all regions, apart from Europe, where a score below 50% suggests investors are overall negative on prospects for the stock market.
Confidence scores for international stock markets:
|Investor confidence (12 months)|
|May – 2016||Jun – 2016||Change|
|Global Emerging Markets||53.0%||57.0%||+4%|