31 October 2018

One of the most depressed sentiment readings in thirty years: time to buy?

5 min read

 
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Kimberly Robinson

Corporate PR Manager

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Royal London Asset Management’s head of multi asset, Trevor Greetham, believes the glass really is half full, and here is why.

Investor sentiment and global equity prices

“Things are bad but they aren’t that bad.

"Volatility tends to peak in October, a fact underlined by famous October crashes in 1929, 1987 and 2008. We expected this October to be choppy with the Investment Clock in the equity-unfriendly Stagflation stage of the business cycle and geopolitical risk rising. Trade tensions, Eurozone stress and Brexit uncertainty make for a toxic mix and we reduced equity exposure to neutral in the summer.

"Stock prices have fallen sharply over the month and our proprietary investor sentiment indicator is now almost three standard deviations oversold (see chart).

“The indicator includes measures of stock market volatility, a survey of private investor bullishness and a metric showing the degree to which company directors are buying shares in their own companies. Markets are volatile, investors are bearish and US company directors are very strong buyers of their own stock.

“To put the current reading into context, this is the tenth most depressed sentiment reading since 1991 (see table). The Trump Slump is right up there with some of the most memorable panics in living memory.

Things are bad but they aren’t that bad. Global growth has been slowing but we expect US growth to remain strong well into 2019 on the back of Trump’s tax cuts and spending increases. Meanwhile, China is responding to market stress by cutting interest rates, expanding bank credit and cutting taxes. We expect the world economy to continue expanding and we expect stocks to recover from their current negativity as good corporate earnings numbers continue.

“We have been buying stocks on weakness over the last few weeks and now have a moderate overweight position in the multi asset funds we manage. We are very much aware of the short term risks but with sentiment so depressed and stock market seasonality about to turn positive it’s time to say the glass is half full, not half empty.

- ENDS -

For further information please contact:

Kimberley Robinson, Corporate PR Manager

About Royal London Asset Management (RLAM):

Established in 1988, Royal London Asset Management (RLAM) is one of the UK's leading fund management companies, providing investment management solutions to both wholesale and institutional clients such as not-for-profit organisations, local authorities and the insurance sector.
RLAM manages £117 billion of assets and employs 89 investment professionals. It invests in all major asset classes including UK and overseas equities, government bonds, investment grade and high yield corporate bonds, property and cash.

For professional clients only, not suitable for retail investors.

Issued October 2018 by Royal London Asset Management Limited, registered in England and Wales number 2244297; authorised and regulated by the Financial Conduct Authority. Registered Office: 55 Gracechurch Street, London, EC3V 0RL.

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