Tide turns as investor cash begins flowing back into FTSE

Investor confidence in equities seems to be improving, with stock market investors having an average of £28,000 invested in the markets today, compared with just £24,000 in December 2008, according to the fourth Investor Outlook report from Lloyds TSB Wealth Management.

Although still below the £51,000 average investment in November 2007, this is the first time that cash invested in stocks and shares has increased since the study began in late 2007.

Prabal Gupta, Propositions, Investments and Marketing Director, UK Private Banking comments: "In the past few months, we have seen signs of stabilisation in the markets with some commentators suggesting the first ‘green shoots' of economic recovery are starting to push through.

"The signs may be small, but this confidence seems to be infectious. Rather than simply talking about recovery, investors are putting their money where their mouth is and cash is starting to flow back into the FTSE. This can only support what could be the first step on the long road to economic recovery."

Investor reaction to the past six months

Investor confidence in stocks and shares has improved significantly at both ends of the spectrum in the past six months. Twenty eight per cent of investors say that they felt confident about the markets since December 2008 (up from 16 per cent in the previous six months) and just under half 49 per cent felt apprehensive - a 14 per cent fall from a high of 63 per cent towards the end of last year.

However, the report, which tracks investor confidence on a six-monthly basis, still shows signs of caution in the markets, with 27 per cent of investors surveyed saying that they have moved some or all of their money out of stocks and shares and into more cautious asset classes in the past six months - just a one per cent decrease when compared with the six months to December 2008.

Seven out of ten investors (68 per cent) have reviewed their portfolio in the past six months and of those, 40 per cent have moved some or all of their money into more cautious investments, such as cash or bonds with four per cent moving their entire portfolio. One in ten (12 per cent) put more cash into equities in the hope that they would benefit from a rally in the markets - a slight rise from eight per cent in December 2008.

Investors are still looking to the news pages as their main source of financial advice, with 37 per cent of those that made changes to their financial portfolio in the last six months basing it on the advice of journalists and media commentators. Less than a third (30 per cent) made changes after contacting a financial advisor or advisor at their bank.

However, of the 56 per cent of investors who have a formal financial plan in place, a third (34 per cent) have taken action to update their plans in the past two months and four in ten (41 per cent) believe that they should consulting a financial advisor is essential in the current economic environment

Prospects for the coming year

Recent stability in the financial markets is improving investors' long-term view of the markets, with apprehension about stock market investments in the coming twelve months falling from a high of 58 per cent to 37 per cent. In contrast, confidence in the future is on the rise with 36 per cent having faith in the markets in the year to come, compared with just 20 per cent six months ago.

And overall, some investors are starting to see light at the end of the tunnel, with nearly three in ten (28 per cent) saying that they believe the worst of the current turbulence in the financial markets is over.

Reasons for confidence in the financial markets are varied. Almost six on ten (58 per cent) of investors who are confident in the future of the markets think that short-term turbulence in the markets should be ignored and that shares should be looked at as a long-term investment. Forty five per cent believe that, in the long-term, the markets will outperform cash or bonds and a quarter (25 per cent) think that equities are resilient and the current turbulence is a temporary blip.

Amongst apprehensive investors, half (51 per cent) believe that poor returns in the stock markets are set to continue, three in ten (31 per cent) think that equities are too risky and just under a quarter (23 per cent) simply feel investing in the stock market is too stressful.

When asked about their outlook today compared with six months ago, a third (32 per cent) of investors said that they felt more optimistic than they did at the end of 2008.

Prabal Gupta adds, "Investing in the stock market always brings with it a certain amount of risk. However, with the right financial advice and an accurate assessment of financial needs and risk appetite, the upside can be significant.

"It's encouraging to see investors coming back to stocks and shares and putting their faith into the markets. What remains to be seen is whether this short-term rally will evolve into a sustained recovery."