Despite a blip on the equity radar screen this week, brought about by investors getting twitchy over the prospect of a rise in interest rates, there are whispers that the bear market might be comingto an end.
After three years of the worst stock market performance since the 1930s, the FTSE100 index of leading shares has gained nearly 1,000 points since its low point of 3,287 in March.
Shares in small companies have performed even better, rising on average by more than 40% since the trough earlier this year.
The signs are that private investors’ confidence in the UK stock market is on its way back. Figures from share dealing analyst ComPeer indicate a 20% rise in private investor share trading between April and June this year. Investment funds under management also grew for the seventh consecutive month in August to pounds 227bn – up 10% on the previous month.
On the trading side, both advice-based and online brokers have reported a marked improvement in business. Online brokers currently have a record 400,000 clients and saw trading volumes leap a massive 42% between April and June .
Back in January the picture was not so rosy. Figures for the end of 2002 revealed the lowest private client trading activity for seven years. Global economic un certainty and fears over the duration and cost of the war in Iraq kept investors, large and small, away from the stock market.
Hilary Cook, investment strategy director at Barclays Stockbrokers, the UK’s largest retail stockbroker, says that changed once the invasion of Iraq was underway. “The minute the war started there was a feeling it was going to be shorter and less expensive than first thought,” she explains. “The market was looking cheap and the big institutional investors and hedge funds started moving back in.”
Ms Cook says once the institutional investors were back private investors soon followed. “Institutional investors are the big boys who drive the market,” she says.
“Private investor confidence returned once they saw the market had sta bilised and the highs and lows seen earlier in the year had balanced out. Economic indicators from the US, where a lot of FTSE- 100 companies generate earnings, were also better than expected boosting optimism in a recovery.”
Barclays Stockbrokers own figures point to a significant rise in private investor confidence. Dealing volumes in execution-only business have risen 50% since March and research carried out by the company showed 60% of clients were thinking of investing more in the stock market over the next six months.
Jonathan Agbenyega of ProShare, the association for promoting private share ownership, points to the growth of investment clubs as evidence of a change in private investors’ attitudes. “This time last year we were seeing the setting up of around one investment club per day,” he says.
“We are currently seeing around two new clubs a day. I think the change happened when investors saw the FTSE break the 4000 barrier. This marked a change in the perception of the global economy which has gradually trickled down to the private investor.”
Whether or not the improvment in the stock market will continue is open to discussion.
Hilary Cook is cautious. “The data coming out of the US shows the economy is doing better than expected” she explains. “We don’t see the situation going back to the 80s and 90s when falling interest rates and low inflation fuelled the market. But we expect a increase of between 7-8% over the next 12 months.”
