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Slight deterioration in asset class sentiment at the beginning of 2015, says Lloyds Bank

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There was a slight deterioration in overall asset class sentiment at the beginning of 2015 following the improvement seen in December, according to the monthly Lloyds Bank Private Banking Investor Sentiment Index. 

Net sentiment increased for five of the ten asset classes surveyed and fell for the other five with a modest overall decline for the ten classes as a whole. This was the sixth negative monthly change in the average sentiment score in the past eight months, taking it to its lowest level since the survey began in December 2013.

Gold recorded the largest positive month-on-month gain with net sentiment increasing six and a half percentage points. This rise probably reflects gold’s ‘safe haven’ status in the face of increased uncertainty regarding the global economic outlook.
 
Japanese equities were the next biggest net gainer in January, rising by six percentage points, which partially offset December’s 16 percentage points fall.
 
The Emerging Market equities asset class was the biggest net loser in January, dropping by 7 percentage points compared with December. Sentiment towards UK and Eurozone shares also fell whereas US equities saw a rise in sentiment.
 
Two of the four sterling-denominated asset classes recorded a positive performance with UK Government bonds rising five percentage points and UK Corporate bonds increasing two percentage points. UK Property saw a four percentage points fall in sentiment.
 
Net sentiment is strongest towards UK Property and Gold, at 38% and 29% respectively. In contrast, net sentiment is highly negative for Eurozone shares, at -43%.
 
UK Property and Eurozone shares were also the best and worst asset classes respectively in terms of net sentiment in January 2014 although both have seen a decline in their overall net scores during the past 12 months.
 
Indeed, seven of the ten asset classes have seen a fall in net sentiment over the last year. The biggest declines have been for Japanese equities (-26 percentage points), Eurozone equities (-22 percentage points) and UK shares (-17 percentage points).
 
Gold has recorded the biggest improvement in net sentiment since January 2014 (+21 percentage points). There have also been gains for UK Government bonds (+4 percentage points) and US shares (+0.4 percentage points).
 
Commenting on the latest Investor Sentiment Index, Ashish Misra from the Wealth Investment Office at Lloyds Bank Private Banking, says: “The fortunes of the asset classes that we monitor were very mixed in 2014. Seven of the ten asset classes, led by the commodities recorded declines. Two sterling denominated assets – UK government bonds and UK property – fared best as they were boosted by the improving performance of the UK economy.
 
“The latest survey shows that sentiment regarding the prospects for the next six months continues to vary significantly between asset classes. Gold has seemingly been boosted due to mounting concerns regarding the global economic outlook. Increasing uncertainty about the prospects for both the Eurozone and Emerging Markets appear to have adversely affected sentiment towards equities in these areas”
 
Actual performance in 2014 was very mixed with five of the asset classes surveyed recording an increase and five a fall.
 
UK Property (+17%) and UK Government bonds (+13%) were the best performing asset classes between the end of 2013 and the end of 2014. These improvements reflect the strengthening of both the UK economy and property markets (residential and commercial) during 2014.
 
Commodities (-33%), Eurozone equities (-10%) and Emerging Market equities (-10%) were the worst performers. There were widespread falls in commodity prices. Most notable was the decline in oil prices due to the slowdown in the Chinese economy, weakening demand elsewhere and the shale gas boom in the US. Eurozone and Emerging Market share prices came under pressure as a result of the deterioration in economic prospects for both areas.
 
Three of the four sterling-denominated classes saw an increase in 2014 – UK Corporate bonds (+7%) as well as UK Property and UK Government bonds – with only UK shares recording a fall (-2%).
 
In the final three months of 2014, UK Property was the best performer with a rise of 9% whilst commodities were the worst performing asset class with a 28% decline.

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