UK Investors More Bullish Than Americans

10/29/2009 2:00 pm EST


Howard Gold

Founder & President, GoldenEgg Investing

Maybe it’s the weather.

It’s very pleasant here in gray and rainy London. Temperatures are in the low 60s, and there’s even a bit of sun over the Thames.

That must be why British investors were slightly more bullish than their US counterparts in the first UK Investor Sentiment Indicator, to be presented here Friday at the World MoneyShow.

Or maybe it’s the market.

The Dow Jones Industrial Average is up about 7% since we last polled American investors in late August, and the FTSE 100, Britain’s benchmark, has risen about as much during that time.

Meanwhile, the world economy has been improving, as shown dramatically by the 3.5% rise in US gross domestic product in the third quarter, reported Thursday morning.

That handily beat economists’ expectations, and was the strongest GDP growth in two years. Markets, including the FTSE, rallied on the news.

Given all that, it’s surprising UK investors weren’t even more bullish. Some 53% of them expect the FTSE 100 to rise by the end of 2010—some five percentage points better than the US investors we surveyed two months ago.

And 22% of the respondents declared themselves to be very bullish, predicting the FTSE will rise by more than 10% by the end of next year. That’s more than twice the measly 10% of US investors who thought the Standard & Poor’s 500 index would rise sharply.

And only 30% of the UK investors polled were bearish on the FTSE, about in line with earlier US surveys.

Their favorite asset classes: hard commodities and emerging market stocks.

The poll was taken between October 21st and October 27th, with 244 responses from UK-based subscribers to You can see the Power Point with all the results here.)

So, are the British now the optimists and the Americans the cynics?

Well, not quite. Many of the UK investors still don’t expect the recession to end soon. (The poll was concluded before the release of the US GDP figures.) Forty-four percent of those surveyed say the UK recession will conclude in 2010, and another 42% think it will end even later. Only 14% believe it will wind down this year or has ended already.

Maybe the investing public has a different definition of when a recession ends than the economists do, but there you have it.

These investors are slightly more sanguine (or slightly less saturnine) about the UK residential property market, which, like its US counterpart, has taken a big, big hit. Some two-thirds believe the market won’t bottom until next year at least, although significantly, one out of four thinks it has bottomed already.

About the same number say global equity markets hit their lows in March, and we are in a new bull market. Some 33% think we’re in a bear market rally and the FTSE will ultimately achieve lower lows, while a plurality—44%—believe we’re in a volatile market that won’t make big moves either way for a while.

There’s not much difference of opinion on inflation, however: 88% of those surveyed expect inflation to stay the same or rise. Only 5% buy the deflation scenario, a sign that the Federal Reserve and the Bank of England have done at least that part of their job.

So, it’s no surprise hard commodities and emerging market stocks were the asset classes these investors thought would perform best over the next year—remarkably similar to what the US respondents said back in August.

Thirty-two percent of the UK investors said hard commodities would do best between now and December 31, 2010. One out of four liked emerging markets, which are tied to commodity prices and global growth. Agricultural commodities, UK stocks, and good old cash each garnered about 10% of the votes, but nothing else aroused much enthusiasm.

Might I be forgiven for assuming there are a good number of gold bugs in these investors’ ranks? And it strikes me as more than a bit inconsistent to believe overwhelmingly that the recession won’t end until at least next year and also to think that inflation is going to be a problem soon.

Maybe UK and US investors are nostalgic for the stagflation of the 1970s—or so worried they’re looking for protection against it? My own view: Don’t break out the old Fleetwood Mac or Pink Floyd albums any time soon.

There’s one thing about which these British investors are nearly unanimous: Prime Minister Gordon Brown and the Labour Party are toast.

Some 86% of the people we surveyed expect the opposition Conservative Party to take power in the next general election, scheduled for next year, while only 12% believe the dour Mr. Brown will keep his hold on Downing Street.

And no matter who wins, 93% of our respondents say they’ll be paying more taxes. In that, they are also in agreement with the US investors we polled.

Prime Minister Brown’s government and the Conservative opposition leader David Cameron have pledged to make significant spending cuts in the bloated British budget, but the people we surveyed don’t have much confidence either party will manage the nation’s finances well enough to keep from having to dig deeper into voters’ pockets.

Both British investors and their American cousins show much less optimism about their political leaders than about the markets. So, as in other things, the attitudes on both sides of the pond have converged—in this case, in a deep cynicism about politicians that is richly deserved.

Howard R. Gold is executive editor of The views expressed here are his own.

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