Investor Confidence Grows Since 2008 - But They Are More Cautious About 2010

by Robin Pilgrim, LawAndTax-News.com, London

13 January 2010

Investors are feeling far more confident about the market than they did a year ago – but less confident than they were before the summer, according to the latest findings from the UK Investment Management Association. The findings come from research conducted amongst 3,451 small retail investors in the UK.

The numbers planning to invest have practically halved since May 2009, when the last survey was done, from just under 1 in 3 (30%) to 1 in 6 (17%). The biggest change has been amongst the wealthiest investors – back in May, 44% planned to invest, whereas now this has fallen to 27%. Not only has confidence slipped, but investors intend to be less active in the market in the coming six months than they have been over the last half-year.

The main reason given for not investing, unsurprisingly, is that people do not have sufficient spare cash (59%), whilst 30% say that any spare cash is going into savings rather than investments. These reasons come well ahead of concerns about the market, with some saying they don't think now is a good time to invest because the market is too volatile (18%) or that they think it will fall (9%).

Overall, a reduction in risk appetite is apparent among all groups. The proportion prepared to accept no risk to their investments has risen from 19% in May to 28% in November. A third of over 65s (33%) will accept no risk. The less well off are consistently more cautious, with 2 in 5 of those with household incomes below GBP25,000 saying they are not prepared to accept any investment risk at all, whereas this figure is only 1 in 6 of those with household incomes over GBP60,000.

More than twice as many investors plan to be more cautious than plan to be less cautious in the coming months (41% against 18%), with those planning to keep additional cash in savings outnumbering those with more adventurous plans by four to one. Lower value investors are especially focused on safety – for every two planning to take on more risk, nine are looking to be more careful.

Despite a greater desire to seek the safety of cash, investors are frustrated by the low returns offered by cash savings. More than half (53%) are finding it more difficult to find a good place for savings, outnumbering those finding it easier (12%) by more than four to one. The problem is especially acute for older people who rely more heavily on savings income. Of the over 65s, 58% are struggling to find a good home for their savings (compared to less than half (46%) of the under 50s).

Investors consider the outlook for global markets has improved steadily over the last year, but they are not especially bullish, particularly when it comes to the UK.

Investors see equities and residential property as the most attractive type of asset, but with a score of 5.5 out of 10, investors are relatively lukewarm on the outlook. The correction in house prices has seen a reappraisal of property's investment prospects. Over the last year and a half, investors have steadily become more positive on the outlook for home values.

Equities are the only asset class to be seen as less attractive than in May. Investors rated the attractiveness of all other assets higher than in May, except for bonds, whose score is unchanged. In fact, bonds are the only asset class perceived as less attractive than 18 months ago. Commodities and Commercial Property saw the biggest improvement in sentiment. The UK is the lowest rated market and the only one whose attractiveness has declined in the last six months.

Investors are more optimistic about the prospects of the FTSE 100 reaching 6,000 than they were in May. Two thirds (68%) of UK investors believe the FTSE will take more than a year to regain the 6,000 mark, with 13% thinking it will do so within a year. But this is an improvement on the 87% in May who thought it would take a year or more.

Broadly speaking, higher value and older investors were less optimistic on investment prospects than younger, lower value investors for a range of asset classes and global markets.

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