Investor Confidence falls 11% as Budget jitters dominate

• HL’s Investor Confidence Index shows a fall of 10 points to 75 (down 11.2%).
• Confidence in UK economic growth tumbled by almost 20%.
• The looming Budget in the UK seems to have spooked investors who are concerned about rising CGT bills and potential pension reforms.
• The only positive sector was Japan, where confidence improved marginally.
• Investors are a little more likely to buy passive funds than they were last month.

Victoria Hasler, head of fund research, Hargreaves Lansdown:

“Investor confidence fell 11% in October, and confidence in UK economic growth tumbled by almost 20%. Confidence fell in all sectors except Japan, with the biggest falls in Europe and the UK. The looming budget in the UK, due to be delivered just one day before Halloween, seems to have spooked investors, with many worrying about cuts to the capital gains tax (CGT) allowance, rises in the CGT rates and potential pension reforms. Overall, with the likelihood of many treats coming from this Budget being low, it feels like it could be a pretty scary time for UK investors.

The only region where investors were feeling a little more positive was Japan, where confidence rose 7.2%. This was after a big drop in September though (post the market volatility in August when the Bank of Japan raised interest rates). Confidence was largely flat in North America, despite the upcoming Presidential election, as investors continue to have faith in the big tech names which have been dominating market returns there. 

Confidence in UK economic growth has fallen by 14 points (19.8%) from September, and this is after a fall of almost the same magnitude the month before. It would seem that investors’ initial enthusiasm for the potential stability of a new government has waned, and they now have less faith in the new government’s ability to grow the economy, at least until they have seen the details of the upcoming Budget. 

The Sentiment Market Index (how likely people are to invest compared to the previous month) also fell, although there was a bit of an uptick specifically in investors’ likelihood of buying passive funds. This may have something to do with the struggle that active managers have had to outperform in the US given the outsize influence of the big tech names on index performance.

Fund flows continue to be dominated by passives, particularly in the US, global and technology sectors. We would caution, however, that there is big overlap between most of these funds (the global index is now over 70% US and almost 25% tech stocks). Investors who are worried about scary times ahead may want to diversify into different areas of the market such as bonds, which could benefit as interest rates fall.”

Global investor confidence 

HL data

Investor Confidence Index

The Investor Confidence Index is compiled by surveying HL clients on a monthly basis. Each month we send the investors’ confidence survey to 6,000 random clients and there is a representative split of our clients by age. On average around 10% of clients respond.