Brexit has driven UK investor confidence to an all-time low — below levels seen during the 2008 crisis and Iraq war

Traders work on the floor of the New York Stock Exchange August 9, 2007.

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Traders work on the floor of the New York Stock Exchange August 9, 2007.
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REUTERS/Lucas Jackson

  • Investor confidence for 2017 is the worst on record, according to Hargreaves Lansdown’s Investor Confidence Index.
  • Confidence for the year is worse than the average for 2008, during the financial crisis, as a result of Brexit, the snap election and memories of the 2008 crisis.
  • Following months of political uncertainty, confidence this year was lowest during December.

LONDON – Investor confidence sank to a record low in 2017, below crisis and wartime levels, as a result of political and economic uncertainty caused by the Brexit vote, according to new research.

Hargreaves Lansdown’s Investor Confidence Index shows confidence for 2017 was the lowest annual figure on record since the Index began in 1995. Confidence averaged 76 for the year, one point lower than that recorded in 2008 at the height of the financial crisis.

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Hargreaves Lansdown

Overall, the report said, sentiment for 2017 was worse than at any time since 1995, “including the tech crash, the Enron scandal, the second Gulf War, and the financial crisis.”

“Investor confidence is pretty low, largely because the UK faces a changeable political and economic situation, as a result of Brexit and the 2017 general election, while the financial crisis still casts a long shadow over proceedings,” said Laith Khalaf, senior analyst at Hargreaves Lansdown.

Confidence this year was lowest in December, dropping to 67 from November’s reading of 77. Given 2016’s average was also a low of 78, the report said, we are now in a “prolonged period of extremely poor sentiment amongst investors.”

Political uncertainty

The result of June’s snap election – which led to a “fragile government, and the ongoing prospect of another election being called at the drop of a hat” – dampened confidence further, said the report. While the average reading for 2017 prior to June’s election was 83, this has since fallen to 74.

In November, a survey by the Bank of England showed the biggest perceived risk to the UK’s financial system was the UK’s political system. Weakening confidence was also driven by the fact that “social media has given voice to as many worrying statistics as you’d care to come up with,” said the report, as well as the long shadow cast by the financial crisis.

In the wake of low confidence, said Khalaf, investors are “fleeing UK equities in droves,” with £2.2 billion withdrawn from UK equity funds in the ten months to October.

Although the EU referendum “destabilised British politics,” said Khalaf, he cautioned that Brexit’s full effects “will not be known for many years” and that investors should not “get hypnotized into paralysis by the swinging pendulum of the Brexit negotiations.

Stock market highs

Despite poor investor confidence, the FTSE 100 repeatedly hit record highs in 2017. This has been widely attributed to a “weak currency and cheap money” since the Brexit vote, said Khalaf – supporting factors which show “little sign” of abating in the near future.

According to the report, the general caution being exercised by investors suggests the progress made by the UK stock market “has not been built on irrational exuberance.”

This year was also a record breaker for fund sales, the report said: in the year to October, sales totalled £38.8 billion.

The lowest monthly confidence figure recorded by the Index to date was in November 2016, when it plummeted to 59. Sentiment was similarly low in March 2008, during the financial crisis, and May 2012, during the Eurozone debt crisis, falling to 61 points in both cases.

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Hargreaves Lansdown