Investors turn their back on UK shares

Posted on October 31st, 2011 | Categories - News

September saw the sales in investment funds fall to the lowest levels since the recession, however those people who did invest in the UK have been rewarded with record performance during October.

Figures released by the IMA (Investment Management Association) show that sales of investment funds fell in September to £568 million, the lowest figure since October 2008 when the UK was in the grip of a severe recession, and around £2 billion lower than the same time last year.

Sales of funds, whether inside or outside an ISA (Individual Savings Account) have averaged £2.1 billion each month over the past year, emphasising the massive drop in September.

As investors looked for ‘safety’ Bond funds proved more popular last month than equities, although sales were down across the board.

Increased volatility

The fall in sales for September is part of an ongoing trend over the past quarter, which experts believe is down to a lack of investor confidence and nervousness about stock market volatility.

Richard Saunders, chief executive at the IMA, said: “September’s further slowdown in fund sales confirms the trend of the previous two months. As a result net retail sales in the third quarter were the lowest since 2008.”

Saunders continued: “Investors were cautious in their asset class choices in September, with bonds and balanced funds the best selling assets. There was a modest outflow from equities overall, although UK equity income funds continued to attract investors.”

Record FTSE rise

Those investors who decided to steer clear of the UK stock market may have missed the biggest monthly rise since 1990.

With only one day of trading to go the FTSE 100 is up 11.19% so far this month, jumping nearly 600 points since the end of September.

The rise in value of UK shares represents a remarkable turnaround with the FTSE 100 falling over 13% in the quarter to the end of September, on the back of concerns about the world’s economic recovery and debt within Eurozone countries.

However, improved data from the US, which showed a surprising rise in retail sales and improved growth, along with hope that crisis in the Eurozone may now be at least partly resolved has pushed the FTSE higher.

Despite September’s rise some experts have warned that the rally may not continue. Jeremy Batstone-Carr, chief economist at Charles Stanley, said: “With no track record of achieving a realistic solution, investor expectations of the Euro leaders’ summit when equities troughed on October 4 were very low,”

Batstone-Carr continued: “At those levels the market was fully pricing out any progress at all, coupled with a swift return to recession in the US.”

“But as US data emerged a little better and investors began to look forward to the third-quarter earnings season, aggressive short positions began to be covered. As momentum built and the euro-dollar exchange rate revived, so the short covering gathered pace.”

He concluded:  “only [on Thursday] did we see anything like significant volume in equities, probably a sign that the rally has run out steam”.