Investor confidence is at a low point following a number of recent issues.
Weak personal investor activity is a key challenge for new PM
- London Stock Exchange data shows H1 2019 transactional volumes down nearly a quarter (24%) on previous year.
- Personal investor confidence impacted by Brexit, market values and high profile negative events within UK financial services sector.
- Boris Johnson needs to take decisive action to rebuild investor confidence and encourage wider participation in capital markets.
Figures from the London Stock Exchange (LSE) show transaction volumes on the LSE were down by nearly 25% in the first half of 2019 compared to the same period in 2018.
At the same time, our research* shows the persistent uncertainty arising from the Brexit process has clearly unsettled personal investors.
Our latest customer poll found two fifths (40%) believe the UK should leave on 31 October even without a deal, despite some 57% believing a hard Brexit will have a negative impact on investments. Less than one in three personal investors are planning to, or already have, changed their investment portfolios or behaviour. This means over two thirds are, in essence, holding what they have already got or are waiting until the uncertainty is resolved before making any new investment decisions. This is partly driving the lack of market activity evident in the LSE volumes.
The stock market has risen strongly since the financial crash in 2008. Even since the EU referendum the market has risen sharply, up over one fifth (20%) since June 2016. However, that trend of a rising market has stalled in recent times with the market now flat compared to the time of the last General Election in 2017. When asked about their expectations for the rest of the year, a significant majority (73%) of personal investors believe the market will end the year below current levels.
Recently, a number of issues have dented investor confidence in markets. These include the special administration of Beaufort Securities which led to investors being locked out of their accounts for many months, and more recently the issues surrounding the Woodford Equity Income Fund. When asked, over three quarters (78%) say issues such as the suspension of the Woodford Equity Income Fund had undermined trust in financial services. Even more critically, over one in four (27%) indicate the issues had made them less confident when making investments.
The findings from our research coupled with market data published by the LSE shows how challenged personal investor sentiment currently is. Whether impacted by Brexit uncertainty, the seeming end of a bull run or recent issues within the financial services sector; personal investor confidence needs to be rebuilt.
When asked what they would like to see the new Prime Minister do for personal investors, our customers favour increases to tax free savings/investment thresholds (58%) and reductions to capital gains tax (37%). More philosophically though, 44% want him to do more to encourage wider share ownership, and nearly one third (30%) want more done to encourage social impact investing. I believe these points to be fundamental. Since the financial crisis there has been a dramatic fall in the number of quoted companies and returns have been concentrated in the hands of private capital and those able to borrow at low rates of interest.
Boris Johnson must take steps to inspire wider participation in capital markets, for example, encouraging companies to take active roles in enabling employees and customers to become shareholders. Reforming Company Law to make Part 9 of the Companies Act 2006, which enfranchises nominee shareholders compulsory on all companies and brokers, would be one such measure, encouraging personal investors to engage with their investments.
*We surveyed 1,454 of our customers anonymously online 10 – 16 July 2019.
These views are those of the author alone and do not necessarily reflect the view of The Share Centre as a whole.