Over the last 12 months, the political and economic climate has been in a constant state of flux. Three prime ministers, four chancellors and countless fiscal statements – in combination with eyewatering inflation and rapidly rising interest rates – have made it an increasingly difficult task for retail investors to stay up to date with the government’s plans for the economy.
In particular, September’s mini-budget created an incredibly volatile environment in the financial markets. The measures, which aimed to boost growth via tax cuts and increased government spending, caused a destructive run on the GBP and caused the gilt markets to spike significantly. As a result, the policies’ architects, Truss and Kwarteng, were forced to resign.
The person chosen to bring stability and market confidence back was the current Chancellor, Jeremy Hunt. Once in office, he quickly set about undoing the damage that his predecessor had caused before outlining his own plans for the economy in November’s Autumn Statement. For now, they seem to have had their desired effect, and some semblance of stability has been restored. That said, how has investor sentiment been impacted by the chaos of the last few months?
Investor sentiment
To explore this issue, HYCM commissioned a survey of 721 retail investors. Unfortunately for Hunt, the Autumn Statement has not instilled much confidence.
Giles Coghlan, chief market analyst, HYCM, the online provider of forex and Contracts for Difference (CFDs) trading services for both retail and institutional traders explains the results.
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The market research was carried out between 17th and 22nd November 2022 among 2,000 UK adults via an online survey by independent market research agency Opinium. Within this sample, 721 respondents had investment portfolios worth in excess of GBP10,000 – this includes all assets from bonds and currencies to commodities and stocks and shares but excludes any property that is used as their primary residency.
Admittedly, it appears that the decision to increase taxes and limit government spending in the Autumn Statement has been popular amongst a reasonable proportion of investors. In fact, just under half (48%) believed that this was the right approach to take, even though over three-quarters (78%) of investors believed that the measures announced will not have a positive impact on their portfolios.
Obviously, after three years of huge fiscal packages to maintain the economy throughout the pandemic, investors want the national deficit to be addressed, but they still have concerns about how their investments might be affected. For instance, 63% of investors said that they are worried about how Hunt’s plans might limit economic growth, while an overwhelming majority (74%) are already dissatisfied with their returns in the last six months.
As a result, just 27% of investors have faith in the Conservative Party’s economic policies, and an additional 30% said that they didn’t think Jeremy Hunt was the right person to be Chancellor. Therefore, it’s clear that the Autumn Statement has done little to create positive investor sentiment towards the government and its economic policies, but how is this crisis of confidence impacting investment steps?
Navigating the coming months
For over half of investors (58%), interest rate hiking cycles and sky-high inflation are the biggest threats to their portfolios. As such, the same HYCM survey explored how investors plan to navigate the coming months in order to get the best returns for their investments.
Unsurprisingly, with the chaos and volatility in the markets that the last few months have produced in mind, liquidity has become an increasingly important facet of investors’ plans. Consequently, nearly one in two (48%) said that quick and easily tradable investments are of increasing importance in the current economic landscape, whereas a slightly smaller proportion (45%) are avoiding making long-term decisions about their portfolios due to recent market turmoil.
Indeed, that final figure would suggest that investors are looking to reduce risk in their portfolios. However, just 21% of respondents said that they planned to increase their holdings in more safe haven or stable assets. Meanwhile, a significant majority aren’t planning on decreasing their investments in stocks and shares; an intriguing trend to uncover, particularly as we edge closer to a recession. That said, 37% are looking to diversify their portfolios to protect them in a range of potential scenarios.
Despite recent stability in Westminster and in the markets, the policies laid out by Jeremy Hunt in the Autumn Statement have done little to invoke confidence amongst investors. In particular, investors are still concerned about how these measures, when combined with inflation, could impact economic growth and their portfolios. Therefore, as we head into the new year, it wouldn’t be surprising to see a surge of investments into safe-haven assets in the first few months of 2023.
Any opinions made in this material are personal to the author and do not reflect the opinions of HYCM.
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