Investor sentiment bounces back from Brexit to hit 2016 peak - BoS

Investor confidence has bounced back following last month’s fall in the wake of the EU Referendum, the latest figures from the Bank of Scotland Investor Sentiment Index show.

All asset classes bar two – gold and cash – have seen a rise in positive investor sentiment since last month despite continued market volatility. Investor sentiment is now at its highest level this year following a rise of 8.13 percentage points from July 2016.

Gold remains the preferred asset class for most investors (at 41.54 per cent), although July saw a drop in sentiment of 12.04 percentage points. Whilst the past few weeks have seen greater stability in the political spectrum and a renewed confidence in the wider markets, this decline suggests investors no longer feel so compelled to shelter in safe havens.

UK equities and property showed the biggest increase in sentiment month on month (23.98 and 13.02 percentage points respectively).

This follows a notable fall in confidence in July which was triggered by the EU Referendum and the subsequent suspension in trading of several of the large commercial property funds due to liquidity concerns. UK government and corporate bonds also rebounded despite remaining in negative territory.

Attitudes towards the typically more risky asset classes have also maintained an upward trend. The zeal for Emerging Market equities in particular, which has displayed positive sentiment for the fourth month in a row, continues to increase as investors witness a pickup in Chinese capital flows and more positive US data. Meanwhile, sentiment towards Japanese equities has become positive for the first time since June 2015.

Markus Stadlmann, chief investment officer at Bank of Scotland, said: “Investor sentiment has rebounded since the EU Referendum. The fact that gold and cash are viewed slightly less favourably reflects this greater confidence in risk assets. It is still early in the process, but as the economic data starts to come through, the post-Referendum outlook will become clearer for investors. For example, if we see clear evidence of real salary growth, this should be positive for UK households and would benefit the economy, but if domestic spending falls it will have an impact on specific companies and sectors. At present, UK equities appear to be proving resilient, and generally we are beginning to see more positive news emerge globally.”

Actual performance of the asset classes over the past month has correlated with the overall sentiment by being predominately positive. Only commodities experienced month on month declines, falling 11.1 per cent, despite a slight increase in sentiment. UK and Eurozone equities were the strongest performers, despite the latter having displayed very negative sentiment since records began. In spite of the sell-off in the wake of the Referendum, UK government and corporate bonds have seen the biggest improvement in performance over the past 12 month period (13.3 per cent and 8.1 per cent respectively) with only gold performing better at 23.3 per cent.