Investors look beyond Europe for returns as bounce back optimism increases

Japanese economy

Investors searching for stronger returns are turning to Far East Asia, according to the latest Investment Forces research from Charles Schwab UK. 

The research reveals that Japan is now the most attractive market for UK investors, with 68 per cent seeing it as a good option for investment. In the last six months, the Nikkei 225 in Japan has risen 22.19 per cent. In comparison, the pan-European Stoxx 600 has increased 18.92 per cent, while the S&P 500 is up 17.91 per cent during the same period.  

This shift to investing beyond Europe is borne out across the research. British investors also view China as a significantly more attractive country for investment compared to May 2020 when this research was last undertaken. China has seen the biggest rise in attractiveness, now appealing to 60 per cent of investors, up 15 per cent since May 2020.  

The United States has also become a more popular investment location. 67 per cent of British investors consider it to be a more attractive market after November’s presidential election. As a result, nearly one in five (18 per cent) investors said they had invested more in the US over the last three months.  

Investors are increasingly looking abroad for opportunities as market optimism is starting to bounce back. More than half of UK investors (53 per cent) are optimistic about the outlook for global markets in the next 18 months. This represents an eight percentage-point increase compared to May 2020. In addition, almost half (47 per cent) of investors have seen an increase in the value of their investments in the last three months. Again, this represents an improvement from May 2020 when just 29 per cent had seen a rise in the value of their investments. 

Richard Flynn, UK Managing Director at Charles Schwab, says: “Faced with sluggish recoveries in UK and European markets, British investors are going global, turning to Japan, China and the US for higher returns. Investors are more likely to look abroad for opportunities as their optimism increases and we’re seeing British investors becoming more bullish as the performance of their portfolios improves. The combination of a strong bounce back in the Far East coupled with confidence in the Biden administration positions these markets as the Big Three outside of the UK for investors.”  

As a result of this increased optimism, more than three-quarters of investors (77 per cent) see current conditions as a good opportunity to invest in undervalued assets. Real Estate is now considered a good option by 69 per cent of investors, increasing from 60 per cent in May 2020. The tourism and hospitality sector has also become more popular, as 40 per cent of investors viewing the sector as attractive. This represents a five percentage-point increase from last year, as the end of lockdown is in sight. However, not every sector that suffered during the pandemic has seen a rise in popularity. Only 35 per cent of investors consider high street retail as an investment opportunity, falling from 37 per cent in May 2020  

Despite the more positive outlook, investors are still concerned about the impact of the pandemic.  More than six out of ten investors (62 per cent) think it may have a negative impact on their investment portfolio over the long term. This suggests that most consider the economic scarring caused by the pandemic to be deep. A further 70 per cent are concerned about future lockdowns and pandemics, which could mean they will be more cautious about future investments. 

Flynn adds: “Investors are now looking for green shoots of recovery in some of the sectors which were hit hardest by the impacts of the pandemic. As we get closer to the end of lockdown, many investors are viewing these sectors as potentially undervalued and due for a rapid bounce back.  

“However, fears of a new Covid variant or a future pandemic continue to weigh on investors’ minds. The current volatile conditions remain a challenge for most investors and highlight the importance of regularly engaging with your portfolio and taking an open, considered, and diverse approach to investing. To future-proof your investments as best as possible it is critical to consider the longer-term trends impacting economies rather than just focusing on short term issues and shocks.”