European investor confidence up by more than a quarter in May while optimism for the UK inches up again

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Investor confidence

Investor confidence in Europe has risen by 28 per cent compared to April 2021, according to the Hargreaves Lansdown Investor Confidence Index, with the accelerated roll out of vaccines likely to be behind the uptick.

Confidence in the UK meanwhile, has risen again in May to another record high score this year. Confidence in the UK is up another 4 per cent since April and 51 per cent since last May.

In contrast, confidence in Asia Pacific, Japanese and global emerging markets has fallen by 3-4 per cent, probably due to a resurgence in new strains of the virus.

Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown, says: "The catch up game being played across Europe when it comes to the roll-out of vaccines appears to have boosted investor confidence in the region by more than a quarter. Investors had appeared pessimistic last month about the prospects for European assets, given ongoing lockdowns and concerns about the trajectory of the virus. However confidence has risen by 28 per cent compared to April’s levels as the prospects for full economic re-opening have inched closer.

"More virulent strains of Covid are likely to be the key factor blowing optimism off course for the Japanese, Asia Pacific and global emerging markets. The ferocious speed of the spread of the virus across India, and a fresh lockdown in Japan has clearly affected sentiment.

"In the UK, the acceleration of vaccine programmes, and the fact the  country has kept  to the road map of re-opening appear to have helped boost confidence further to another record high this year. The Bank of England’s revision of growth prospects for the economy is also likely to have lifted spirits,  despite the spectre of the rise in inflation. Forecasts that the sharp rise in prices won’t be sustained over the longer term is likely to calm immediate jitters.

"Companies whose fortunes are intertwined with the easing of restrictions are among the most sought after – with British Airways owner IAG and aircraft engine manufacturer Rolls Royce in the top ten list of most popular shares. Cineworld, which saw its share price fall dramatically as cinemas were mothballed, has been a key target for investors. Many are clearly hoping the re-opening will herald a cinema renaissance, but recovering from the shock of Covid won’t be easy, especially with high level of debt the company has had to take on.

"Interest is still sharp for overseas shares GameStop and AMC Entertainment, which have been the subject of frenzied speculation over recent months. Argo Blockchain also continues to be a very popular stock, with some investors still clearly trying to ride the risky crypto wave. We would advise against getting caught up in the hype as there is a risk of a herd stampede into stocks which may not offer long term returns. Given the volatile nature of cryptocurrencies, investing in in crypto-miners in particular, should still be considered high risk and only undertaken with a well-diversified portfolio.

"Clients are continuing to show appetite for investing in smaller UK companies, which are among the most innovative around. The Marlborough UK Micro-Cap Growth and Nano-Cap Growth funds are in the top ten of most popular funds purchased on the platform. Many smaller companies are pioneers in emerging industries and will flourish longer term, while others may struggle so overall they are considered higher risk. The HSBC FTSE 250 tracker also emerged as a favourite again in May, demonstrating investors’ growing appetite for UK focused stocks, amid hopes of a big British bounce back."

Baillie Gifford American remains hugely popular among the company's clients. It has delivered a stellar performance due to its investments in the consumer discretionary and technology sectors. Although the fund has had a very strong performance over the past year, this is a short timeframe, so investors should consider this performance in the context of a longer time horizon and not in isolation.’"
 

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