There’s no need to fear the return of retail investors
LAST week, I was having a Twitter conversation with viewers about Google’s top three autofills for the search query “I want to buy…” The answers that came back varied depending on which country or state the viewer was in.
In the US, people want to buy houses, cars, and, in some places, guns. In Sweden, they also want to buy houses and cars, but the guns have been knocked out of third place in favour of dogs.
In London, the top three things people want to buy are again houses, cars – and shares, in third place. After having seen a significant rally across global equity markets over the first quarter, perhaps it is no big surprise that people (in the UK, at least) are keen to get back into the market. All of which brings us to another interesting question. If “shares” are one of the most popular searches for online shoppers, does this mean that the retail investor is back?
And, when following old rules of thumb, if the retail investor is back, isn’t that one of the first indicators that everybody else should start to get out? Not so, says Kevin Gardiner, head of global investment strategy at Barclays. He thinks selling risk assets now could result in missing a resumed rally, and he advises to use setbacks as an opportunity to add to positions in equities.
Gardiner favours a mix of cyclical, technology and energy sectors, and says you should still be underweight government bonds and investment grade corporate bonds. But now is not the time to fear the surfers who shop.
BANK OF ENGLAND RATE DECISION
On Thursday we get the Bank of England rate decision. While rates are expected to be left on hold, hopes of further quantitative easing have grown after data showed that the UK now officially is in recession, after having suffered two consecutive quarters of contracting growth.
I interviewed Alan Clarke, a UK and Eurozone economist from Scotiabank, and he told me he thinks the Bank of England will leave the door ajar to further monetary stimulus if necessary.
But he also thought that it would remain nervous about inflation because price rises have yet again proved higher than expected.
The last round of the Bank of England’s monetary stimulus, under which it supported the gilt market with £325bn of purchases, ended last week. Clarke told me he thinks the initial response to the stimulus has been good for both confidence and market liquidity, but the fact that it has contributed to higher inflation has also represented a negative headwind to growth.
Clarke also points out that the measures have hurt pension funds by pushing down long term bond yields, with the result being that deficits have “exploded”. Rather than spending money on investing or hiring people, companies have had to use the money to contribute towards closing out deficits.
We shall soon find out whether retail investors will be deterred by any of this – over to Google, the market’s new lead indicator.
Louisa Bojesen is a CNBC anchor