Strong dividends entice investors back into equities

RETAIL investors are buying into the stock market at pre-financial crisis levels, new research from a share registration consultancy today showed.

Private shareholders ploughed a net £473m into equities in the quarter ending in February to take their holdings to £233bn, the highest level since November 2007, the Capita Registrars Private Investor Watch report said.

Market turmoil following the dual catastrophes in Japan wiped £16bn off private portfolios by 16 March, when the FTSE 100 closed at a three-month low of 5,598 – though £8bn had been recovered by 23 March when it returned to 5,796.

A recovery in stock prices combined with ultra-low interest rates and poor house prices has enticed retail investors back to the market.

“Private investors have been attracted by strong dividend yields and the recovery in corporate profits,” said Capita Registrars chief executive Charles Cryer.

Retail investors bought and sold £980m of stock in the three months to February and traded £6.1bn in the year to February, though turnover remains low as investors have added rather than sell shares.

The buying has reflected the current huge market volatility, with investors targeting defensive stocks and those expected to benefit from economic recovery in what Cryer called “cautious optimism”.

Retail investors’ holdings now make up 12 per cent of the UK stock market, up from a low of 10.9 per cent in May 2010.