Eurozone fears dent investor confidence

25th February 2015

Investors remain worried about the impact of eurozone woes, despite the FTSE 100 breaking its 1999 high of 6,930, a new study has found.

The latest investor confidence research from the Association of Investment Companies (AIC) shows that the three biggest worries this year are a eurozone crisis (a quarter were mostly concerned about this, compared to 15% last year), a stock market correction (16%) and UK election worries (12%), which perhaps explains why more investors are hesitating.

The number of investors preparing to invest in the stock market over the next few months is seven percentage points down on the same period last year.

Whilst half (49%) of investors plan to increase their stock market exposure over the next few months, this is down from 56% at the beginning of last year, and 55% in 2013.  Of those planning to increase their exposure, the top three reasons are thus: for a quarter (25%), savings accounts are paying too low a rate of interest, a fifth are just feeling optimistic generally, whilst 14% feel they have more disposable income generally, perhaps boosted by recent oil price falls.

The UK is still the most favoured region to invest amongst a quarter (24%) of active investors, but this is 11 percentage points down on last year (35%).  North America was the second most widely favoured region amongst 23% of active investors, which was a huge increase on last year (10%).  In third place was Europe, favoured by 15% of investors, which was consistent with last year (16%).  Asia Pacific was the fourth most widely favoured region by 10% of investors, and whilst this is down from 19% in 2013, it is ahead of last year, when it was favoured by just 6.5% of investors.

Whilst the popularity of Western markets could indicate investors are in risk-off mode, this is not strictly the case:pharmaceutical/healthcare was the most widely favoured sector this year (22%, compared to just 8% in 2014), perhaps reflecting the strong performance of the sector in recent times.  Whilst smaller companies and blue chips were the second most widely favoured sectors (each 14%), smaller companies have seen a significant reversal in sentiment, since smaller companies were favoured by 30% of active investors last year – a 16 percentage point decline.

Some 70% of investors are planning to use their ISA allowance this tax year, with 37% using only the shares element (35% last year) and 22% using both cash and shares (25% last year).

Annabel Brodie-Smith, communications director at the AIC said: “Markets have climbed a wall of worry so far this year, with investors clearly choosing to be ‘risk on’ in the context of historically low interest rates.  Whilst half of investors are still planning to increase their stock market exposure over the next few months, this is seven percentage points down on last year.  Indeed, whilst the UK remains the most favoured region, it is less so than last year and election fears may be a factor here.”

The AIC conducted its research by surveying registered users of Morningstar’s website for individual investors in the United Kingdom.

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