UK property posted the largest drop in sentiment this month following the Bank of England’s decision to raise interest rates, which put pressure on the asset class, according to the Lloyds Bank Investor Sentiment index.
The monthly index, which measures net investor sentiment towards an asset class, found UK property fell 9.1 percentage points (ppt) to 4.9%, the biggest fall in August.
The BoE’s decision to hike rates by 25 basis points to 0.75% on 2 August, the highest in almost a decade, is thought to have had a “significant” impact on property sentiment as banks’ costs translate into consumer borrowing costs.
Sentiment was low across all UK assets with the BoE’s rate rise expected to put downward pressure on UK gilts, which saw a drop of 6.9ppt to -9.4%.
UK corporate bonds and UK shares also took a hit in sentiment, falling 0.9ppt to -7.1% and -4.5ppt to -3.1%, respectively as Brexit concerns continued to weigh.
A recent survey conducted by trading venue Liquidnet found 83% of asset managers are putting in place preparations for a ‘no-deal’ scenario while 49% have already put them in place.
Sentiment towards eurozone equities shuffled up 0.9ppt to -7.5%.
Markus Stadlmann, CIO at Lloyds Bank, commented: “Continued uncertainty around Brexit is percolating into investor sentiment and the valuations of [UK gilts].
“There is a clear divide in UK investor sentiment on equity markets. UK and eurozone equities are losing support, while overseas markets remain in favour.”
US equities saw the biggest increase in sentiment, jumping 12.1ppt to 13.8% as major stocks continued to perform well following the correction in February.
However, Stadlmann warned there could be “trouble ahead” amid concerns inflation could spike if a “true” trade war materialises with China while the Federal Reserve’s plan to normalise rates could cause a spike in the US dollar, impacting US exporters.
“US equity warning indicators are telling us to expect continued high volatility and a sideways movement rather than a major fall in stock prices in the next few weeks.
“The US may have the lowest unemployment figures in 49 years but this could have a negative effect on US equity values,” he continued. “With labour demand exceeding supply, wage growth could drive inflation.”
Elsewhere, emerging market and Japanese equities saw a slight rise in sentiment, climbing 0.8ppt to 18.1% and 1.9ppt to 13.3%, respectively.
Source: Professional Adviser