The UK is no longer seen as the best economic market for UK retail investors to invest in, according to the latest Investment Forces research from Charles Schwab UK. Instead, the US now ranks top, with two thirds (66%) of UK investors believing it to be an attractive market.
After dropping 9 percentage points (pp) since the end of 2021, the UK (61%) now ranks fourth after Europe (64%) and Emerging Markets (63%).
A safer and less volatile market?
Among UK investors, the US has become known as a safer and less volatile market to invest in, a sentiment which has increased by 13 pp to 32% since December 2021. Over the same period, the UK’s standing amongst investors as being the most suitable market for investing in today’s conditions has decreased by 11pp, from 50% to 39%, whilst the US has gained a market share of 15%, up from 9%.
When looking at the short-, mid- and long-term, optimism for the UK market has fallen across the board since December 2021. Only 27% of investors feel positive about the outlook for the UK over the next three months, and just 33% are confident about the next 12 months. Investor confidence in the long-term (18 months) is higher than the short-term, but it has still fallen by 9pp to 42%.
The evolving regulatory landscape in the UK also has a part to play in encouraging UK investors to look further afield for investment opportunities.
The halving of the capital gains tax (CGT) allowance, being introduced in April 2023, is expected to have a significant impact on investors in the UK. 56% of respondents anticipate that the decrease in the tax free allowance will have a negative impact on the amount they invest. This figure rises to 75% among Gen Z investors, and 69% for Millennials.
Richard Flynn, Managing Director at Charles Schwab UK, said: “Our research shows the UK market has lost favour with British investors over the past year. The current environment of economic uncertainty, combined with a cost of living crisis, is encouraging UK investors to explore other shores in search of less risky investment opportunities, and many are settling on the US market.”
Flynn said he thought the regulatory environment in the UK, particularly the changes to Capital Gains Tax allowance, will likely have a large impact on mass-affluent investors. This is stimulating a shift to more international investing.
