UK retail investors shun risk in run up to US election

Optimism and risk appetite have fallen over the last quarter among UK retail investors as August’s market wobble and fears over the US election build, City AM can reveal.

Optimism fell 3.5 per cent and risk appetite dropped three per cent in the UK over the last three months, a survey of over 2,500 retail investors from Finimize found.

Two main factors have affected the decision: The market wobble at the start of August which saw stocks temporarily crash and the US election on 5 November.

When asked, 52 per cent of UK retail investors said they believed a Donald Trump victory would boost stocks, compared to 40 per cent for Kamala Harris.

However, 54 per cent of investors expected Harris to win in the election next month, which could signal a shift in market strategy depending on election outcomes.

“Interest rate cuts and the market chaos in August are key drivers of retail investor behaviour at the moment, as they exercise a degree of caution in the wake of uncertainty, but come November, the election outcome could be a defining moment for the market,” said Carl Hazeley, chief analyst at Finimize.

A massive 79 per cent of retail investors expect further interest rate cuts this year, as does the wider market, and 52 per cent said they plan to increase their investments when further cuts come, which could mean an uptick in investment at the end of the year.

In fact, over a third (39 per cent) of retail investors are trimming expenses in other areas, like luxuries and savings to invest more before the end of the year.

This was especially true of younger investors, 43 per cent of whom were cutting down on spending, compared with 30 per cent of over 55s.

“As falling interest rates lead to diminishing returns on savings at the bank, there’s a growing reason for retail investors to look to markets to have the value of their cash outpace inflation over time,” Hazeley added.

“It’s encouraging that younger investors in particular aren’t splashing the cash on luxuries but are thinking longer-term. This shift may be as a result of changing habits through the pandemic, when a lot of them started investing, or a heightened awareness of the importance of retirement planning.”

Interestingly, the amount that retail investors had invested was up slightly from last quarter, while stocks remain the most popular asset class, favoured by 64 per cent of investors, followed by ETFs (48 per cent) and cash (31 per cent).

Growth stocks also continued to be popular among retail investors, as 44 per cent said they prioritised them over value stocks, despite a rotation towards value happening in institutional circles.

“Additionally, given that growth stocks have historically outperformed value stocks, it’s no surprise to see them as a priority for the retail market. On the other hand, the institutional tide is turning with a growing focus on value. It will be interesting to see the impact of this shift on retail investors’ increasingly well-balanced and diversified portfolios in the future,” concluded Hazeley.