Investor confidence continues to rise

Hargreaves Lansdown
Hargreaves Lansdown

Investor confidence is on the up.

So says the Hargreaves Lansdown Investor Confidence Index which rose for the third consecutive month in February.

The index is now standing at a level of 80 points, up from a record low of 59 in October. However, it’s still below its long run average of 100.

DIY investors seem particularly bullish, focusing on prospects in the US, which scored a confidence rating of 68%. Just below that, at 65%, came the Asia Pacific markets.

The US stock markets come from a period of relative strength, standing at a Cyclically Adjusted P/E (CAPE) ratio of 26.6, compared to a long run average of 24.7, whereas the Asia Pacific markets traded at a CAPE ratio of 14.8, compared to a long run average of 22.5.

As for Europe, it was just in positive territory as 51% (above 50% shows positive sentiment, below 50% shows negative sentiment). What’s more, valuations in Europe look relatively attractive, with a CAPE ratio of 13.6 compared to a long run average of 20.7.

Senior Analyst at Hargreaves Lansdown Laith Khalaf said: “Investor confidence is gradually edging up, though there’s still a lot of caution in the air. That’s understandable, as a number of dramas are unfolding this year, including elections across Europe, the evolution of the Trump presidency, and of course the start of the UK’s withdrawal from the EU.

“Despite, or perhaps because of, the election of Donald Trump as President, private investors have greatest confidence in the US stock market, even though valuations are relatively high compared to other parts of the world. US stock valuations are not so elevated they have no scope to move higher however.

“The long term investor should still have a healthy slug of equities in their portfolio to generate real returns, particularly with a bout of inflation on its way.

“Cash returns remain woeful, and indeed NS&I just announced further interest rate cuts to four of their variable rate products, so there is little sign of this situation materially improving.

“Bond yields have picked up since their low in August, following the Brexit vote, however they still carry a fair degree of risk in exchange for a pretty limited return.”

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