Local private investors could miss an upturn
Alarmed by the state of the economy, private investors are increasingly wary of equities and risk missing a stock market upturn when it comes.
Defence pays dividends for private investorsPreferring the safety of cash or the appeal of red-hot commodity investments to mainstream mutual funds, punters are being deterred from battered equities by bad news about the credit crisis, the housing market and job losses.
Their reaction? To sell blue chip equity funds in favour of high-interest cash accounts, or niche sectors such as energy that have made money over the past year.
The danger is that retail investors, traditionally slower to react to market moves and often buyers at the top of a bubble - or sellers at the bottom of a bust - will once again miss out on good value opportunities just as stock market valuations allow for a slowdown in the economy.
"There's a huge amount of negative newsflow," said Gavin Haynes, managing director at adviser Whitechurch Securities. "With interest rates high since the credit crisis began, people are taking some persuading to withdraw money from cash."
While many investors have simply refused to return to mutual funds since finding themselves locked into over-hyped dot-com shares in the market bust of 2000, new investors are also reluctant to buy equity funds.
"The mood is really cautious ... New clients are being put off by headlines," said Mark Dampier, head of research at financial advisor Hargreaves Lansdown.
"But what clients don't realise is that the economy and the stock market are two different things and that the stock market bottoms well before the economy."
According to the Investment Management Association, net sales of tax-advantaged Individual Savings Accounts (ISAs) in this year's traditionally busy ISA season - in the run-up to the end of the tax year in early April - were the lowest on record, while in July retail investors withdrew 491.5 million pounds from funds, compared with 1 billion pounds of inflows a year ago.
Sectors seeing the biggest outflows in recent months have been mainstream UK All Companies and Europe excluding UK equity funds.
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