Investor confidence defies market rebound, hitting fresh lows while public and corporate bonds turn negative

Billy Bambrough
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Investor confidence may have been rattled by the European Central Bank's cut to its interest rate to zero per cent from 0.05 per cent (Source: Getty)

Investor confidence has hit a record low for the second month in a row despite a recovery in markets almost across the board since February lows, according to the latest Lloyds Bank Investor Sentiment Index out today.

The latest reading reveals that once again broad sentiment lags behind markets performance.

Investor confidence may have been impacted last month by the surprise European Central Bank (ECB) cut its main interest rate to zero per cent from 0.05 per cent, according to Lloyds.

The slowing UK economy is also thought to have had an impact, with the forecast for gross domestic product growth for 2016 being revised down to two per cent from 2.4 per cent.

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Earlier this year investors were running scared from a bear market rampaging throughout Europe and the US, though recently performance in equity asset classes, property and commodities have all returned, with the FTSE 100 reaching new highs for 2016 this week.

UK government bonds were the only asset to see month-on-month declines in market performance, down by 0.7 per cent while investor sentiment for UK government bonds and UK corporate bonds dipped by 5.9 per cent and 4.88 per cent respectively.

Markus Stadlmann, chief investment officer at Lloyds Bank Private Banking, said:

We can see that investor sentiment does not simply follow market performance, but is influenced by a combination of market movements, economic news and behavioural biases. The perception of economic data is currently so depressed, meaning that small improvements or surprise changes in economic statistics, which are always closely followed, can have a huge positive impact, potentially disproportionately.

Emerging market equities and commodities, both of which saw market performance rally up 6.9 per cent and 4.9 per cent respectively, outperformed changes in investor expectations last month despite still retaining an ongoing negative perception from investors overall.

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Japanese equities saw the greatest positive change in attitude over the last month, jumping 7.94 per cent this month, from negative 19.43 per cent to negative 11.49 per cent, put down to a delayed response to the Bank of Japan’s decision in early February to join other central banks in negative interest rate territory.

Geopolitical issues and the widening UK’s current account deficit were also thought to be weighing on sentiment.

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