Investor confidence in Europe boosted by more than a quarter in May while optimism for the UK inches up again

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Susannah Streeter, senior investment and markets analyst, Hargreaves Lansdown spoke to Business Leader about investor confidence in Europe at the moment.

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% 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 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.’

*The investor confidence index is compiled by surveying 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 10% of clients respond (around 600 clients).

Clients are asked to say how likely they are to invest in a certain sector over time frames of 6 months, 1 year and 3 years, by selecting Very Likely, Likely, Neither Nor, Unlikely or Very Unlikely.

Top ten shares (including overseas) since 1st May Top ten funds, trackers and IT’s since 1st May
International Consolidated Airlines Group SA Fundsmith Equity
Gamestop Corporation Legal & General US Index
ITM Power plc Rathbone Global Opportunities
AMC Entertainment Holdings Inc Baillie Gifford American
Argo Blockchain Plc Legal & General International Index Trust
Tesla Inc HSBC FTSE 250 Index
Darktrace plc Scottish Mortgage Investment Trust plc Ordinary Shares
Cineworld Group plc Marlborough UK Micro-Cap Growth
Helium One Global Ltd Marlborough Nano-Cap Growth
Rolls Royce Holdings Plc HL Multi-Manager Special Situations Trust

 

Global Sectors % Change May 2021 vs April 2021
Asia Pacific -4%
European 28%
Global Emerging -3%
Japanese -3%
North American 3%
UK 4%

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