By Emma Wall, Head of Investment Analysis and Research, Hargreaves Lansdown:

“HL client Investor Confidence survey for February shows the index has stayed the same overall but shows variation in geographical sectors. Confidence has risen in the European, Japanese, and North American sectors but has fallen in the Asia Pacific sector and stayed the same for Emerging Markets and the UK. Momentum and rallying markets are clearly moving client views.

France and Germany, the two largest economies in the bloc have reported negative data in recent months – the French economy unexpectedly shrank in the third quarter of 2023, while German industrial production has been weak due to high energy prices and German house prices fell sharply last year after a decade of steady appreciation. Economic uncertainty will create market volatility, but markets are forward looking and the expectations of falling inflation, and in time, falling interest rates have provided a boost to stock markets.

The US does not face the same economic challenges, with higher GDP, stronger consumer spending and an expanding population. But it has been a narrow stock market rally, driven by just a handful of stocks in the Magnificent Seven, and investors should take care to evaluate their existing exposures to the US before buying more – or risk heavy biases in their portfolio which will add concentration risk.

The attraction has been amplified for investors by the fact that China, the largest of the Asian emerging economies, has seen its stock market fell significantly over the same period. As well as Jupiter India – one of the most bought funds across the platform in recent months, HL investors have been buying Kotak India Growth.

It is a contrarian call, but we think China is worth looking at despite the negative headlines. While there are question marks over some sectors such as property, looking ahead over the next five to 10 years, on a valuation basis this presents an attractive entry point for investing in China.

HL clients are also waking up to the fact that this is the most interesting entry point for bond investors in decades. While we expect no imminent big downwards movement in bond yields, we see scope for lower yields and higher prices further out, so you are rewarded now with income – from higher-for-longer yields – and growth later, as yields fall. Volatility is hard to stomach but can offer opportunities for good quality active fund managers to take advantage of price fluctuations. Most bought funds in January include Artemis Corporate Bond.

Despite views on the UK stock market remaining flat month on month, it is worth noting that investor confidence in UK Economic Growth has increased by 4 points, despite the Bank of England staying firm on rates and inflation looking sticky. Forward guidance is firm – the Bank of England is not expected to cut rates until later this year however as our clients said they were confident that interest rates will rise has fallen in the short term and risen in the medium and long term.”

Investor confidence in global sectors

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