Investor confidence in emerging markets sees a sharp rise

14th May 2014

Confidence in emerging market shares has seen a sharp rise according to the Lloyds Bank Private Banking Investor Sentiment Index. The index shows a swing of four percentage points – the highest for the month amongst all asset classes covered.

The net sentiment among investors in emerging market shares rose four points from 15 per cent to 19 percent, turning around a drop of three points from the previous month.

Ashish Misra, Head of Investment Policy at Lloyds Bank Private Banking said: “We have recently seen that emerging markets appear to have weathered the volatility in their currency and bond markets arising from the tapering of the Federal Reserve’s asset purchase programme better than investors feared. Secondly, the counter-intuitive and persistent weakness of the US Dollar, which was unexpected in the context of this tapering, has allayed fears of a mass unwind of dollar-funded trade in emerging markets.

“Finally, the very volatility that the initial days of taper brought to emerging markets has opened an attractive valuation gap between emerging and developed markets.”

The sentiment rise compared to a fall in investor confidence towards US shares, with weather-related falls in economic activity adding to concerns that valuations may have gone too far. Sentiment towards US shares fell four points, from 16 percent to 12 percent.

Ashish Misra concluded: “The fall in sentiment for US equities was probably a reflection of the correction in that asset class. This is likely down to investors fretting about the impact of weather on corporate earnings growth and unseasonably cold weather during the first quarter weighing on macroeconomic indicators ranging from retails sales to housing starts.

“While we saw a pick up towards the end of the quarter – in terms of both numbers and outlook – the moderating rate of corporate earnings growth for Q1 2014 would have given investors pause.”

While sentiment towards UK property is still by far the highest in the index (60 percent) its fast rise has slowed in recent months, with only a one point rise since March. However, the asset class has still seen positive sentiment more than treble in the past year.

UK shares, Japanese shares and UK Government bonds all saw two percentage point increases, while sentiment towards Eurozone shares went the other way, dropping by two points. With emerging market and UK shares recording sentiment gains, UK corporate bonds, gold and commodities were all relative flat. The movement in sentiment away from perceived safe haven asset classes and towards shares continues to show self-directed and sophisticated investors.

Investor net sentiment for major asset classes

May 2013 Jun 2013 Jul2013 Aug 2013 Sep 2013 Oct 2013 Nov 2013 Dec 2013 Jan 2014 Feb 2014 Mar 2014 Apr 2014 May2014
UK property +18 +25 +32 +36 +42 +49 +50 +46 +49 +53 +59 +59 +60
UK equities +17 +23 +19 +27 +24 +29 +36 +35 +38 +40 +42 +41 +44
UK Gov’t bonds -7 -4 -7 -2 -3 -1 +7 +1 +8 +9 +9 +14 +15
UK Corp bonds +1 -2 -5 +1 +4 +4 +9 +9 +12 +11 +12 +17 +17
Gold +3 +11 +12 +19 +21 +22 +24 +17 +8 +17 +16 +20 +21
Commodities +8 +6 +8 +15 +11 +17 +18 +17 +13 +14 +19 +18 +19
Eurozone equities -46 -40 -38 -30 -25 -22 -19 -22 -21 -23 -14 -10 -12
Japanese equities +1 0 -1 +4 -6 +5 +4 +8 +13 +3 -2 +2 +4
US equities +10 +13 +6 +17 +9 +9 -4 +3 +10 +10 +12 +16 +12
Emerging market equities +24 +23 +14 +16 +9 +17 +24 +23 +19 +14 +18 +15 +19

Figures have been rounded to the nearest decimal place

1 Net sentiment is a statistic showing the difference between those who hold a positive view and those who hold a negative view each month on the outlook for each type of investment over the next 6 months. A positive net sentiment indicates that a greater proportion of investors surveyed hold a positive view, while a negative net sentiment indicates a greater proportion of investors with a negative view. All figures are rounded to the nearest whole number.

All figures, unless otherwise stated, are from YouGov Plc. Total sample size was 4,842 of which 1,321 adults were investors. Fieldwork was undertaken between 29th April – 1st May 2014. The survey was carried out online. The figures have been weighted and are representative of all UK adults (aged 18+).

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