UK Investor Confidence Returning To Pre-crisis Levels

Investor confidence is returning to pre-crisis levels with cautious levels of optimism in the UK stock market not seen since 2006, according to a new report.

Half of investors are more confident today in the UK stock market compared to 12 months ago, with a return to levels of confidence last seen four years ago, the sixth annual TD Waterhouse Investor Confidence Index shows. 

The results generally reflect a positive mood from investors with expectations of a steady rise in the UK base rate next year rather than any nasty surprises or big interest rate hikes. 

Nearly half, some 49%, of those surveyed think that UK base rate will be no more than 1% by December 2011 while 29% predict it to rise up to 2%. In comparison, only 2% of those surveyed think UK base rate will increase to over 4% in the same period. 

Historically, a low base rate is an upward driver of the FTSE 100 and this is also borne out in the survey findings with two thirds, 66%, of UK respondents expecting the FTSE 100 to trade at around 6,000 points by December 2011. There are already signs it could hit this mark this year and it will be the first time the FTSE 100 has reached the 6,000 point mark since May/June 2008.   

Furthermore, investors are even showing cautious optimism around the shape of the UK economy with the results trending towards a recovery compared to this time last year. Nearly half, 43%, of respondents believe the economy is in a V-shaped recovery, up from 37% in 2009. 

In contrast, only three in 10, 30%, now believe the economy is in a W-shaped double dipped recession, which is down from 36% last year, and only 19% continue to feel the UK is in an L-Shaped depression.  

‘The results show that UK investors now have more balanced levels of confidence in the UK stock market following the highs and lows of the last few years and this is more in line with the levels of investor sentiment we were seeing before the crisis hit in 2007,’ said Darren Hepworth, Trading and Customer Services Director of TD Waterhouse UK. 

The independent research findings also show that three quarters, 74%, of UK investors admit to having changed their investment approach as a result of the global downturn. However, 58% also say they are satisfied with the performance of their portfolio over the past 12 months, with only 15% dissatisfied. 

Over a half, 52%, expect the energy and mining sector to be in the top three performing sectors in the next 12 months, closely followed by the telecoms and technology sectors (43%). The banking sector (39%) is also expected to be among the top three performing sectors in 2011, even though banks came out as the best (17%) and worst (29%) performing investment over the past 12 months. a strong indication that timing an investment is still important.   

A diversified portfolio continues to be of focus, especially when it comes to investing in overseas markets. The survey findings show that 30% of UK investors have bought or sold shares in a company listed outside their own resident country in the last 12 months, with 47% most likely to invest in Europe over the next year  with the US, Hong Kong and Singapore also reasonably popular at 24%.  

The Asian stock market at 25% also overtakes precious metals and commodities (20%) as the expected best performer over the next few months. 

‘It is encouraging to see that investors have learned to navigate the markets, both in the UK and internationally, with increased confidence and measured optimism, and investment abroad continues to be popular among our respondents, particularly among more active investors,’ added Hepworth.