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Investor confidence in bonds and international equities shows strong growth

Wednesday 16th April 2014

Investor confidence in bonds and non-European equities has increased this month, according to the Lloyds Bank Private Banking Investor Sentiment Index, with European investors’ lack of action in the European market partially due to increased caution because of the recent situation in Ukraine.
According to the monthly survey, the net sentiment among investors in UK government and UK corporate bonds increased by 5 percentage points, with US and Japanese shares and gold all increasing by 4 percentage points. Eurozone shares registered a score of -10, although this was an improvement of 4 percentage points, while sentiment towards UK shares fell for the first time since November 2013.
Sentiment towards emerging market shares saw a decrease of 3 percentage points this month following a 4 percentage point rise the previous month, possibly reflecting recent concern about Eastern Europe. 
The increased sentiment towards safer havens tends to revolve around investor sentiment as it jumps between periods of optimism and anxiety. The sanctuary of safe haven assets tends to increase in attractiveness when investors are nervous. For instance, last year’s jump in sentiment towards safe haven assets in October and November very likely stemmed from investor concerns regarding the 16-day Federal government shutdown in the US.
Commenting on the latest Investor Sentiment Index, Ashish Misra, Head of Investment Policy at Lloyds Bank Private Banking, said: “In similar fashion, this month’s increase in positive sentiment towards government and corporate bonds asset classes likely reflects rising levels of investor anxiety around the current situation in Ukraine, as well as the economic risks of increasing signs of a growth slowdown and early signs of an asset quality issue within the banking industry in China.”
He added: “The movement in sentiment away from perceived safe haven asset classes like gold and towards asset classes with a potentially higher risk-return profile – while still keeping government bonds in the mix – gives us some insight into the minds of self-directed investors. Over the course of the last 12 months, there appears to have been a greater willingness to assume risk in the pursuit of potentially higher returns, while at the same time an acknowledgement of the need to maintain a well-diversified exposure to different, less well-correlated, asset classes as well. It will be interesting to see if future sentiment scores continue to bear out this refinement of investment thinking in retail investors’ minds.”

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