UK Fund Managers Flee as Investor Confidence Hits Two Decade Low

The United Kingdom’s stock market has experienced its largest investor exodus in more than twenty years, with international fund managers now treating Britain akin to an emerging economy. A recent survey by Bank of America reveals a dramatic month-on-month reduction in holdings of London listed shares, registering the biggest outflow of British equities since April 2004. This withdrawal takes allocations to UK stocks to their lowest point since March of the previous year, matching the highest level of decline on record.

Elyas Galou, an investment strategist at Bank of America, commented that UK assets are currently the most unloved in the global investment community. Weak productivity growth and persistent inflation have undercut investor sentiment. The survey details a growing sense of uncertainty around the upcoming budget, with many questioning the sustainability of the nation’s debt and rising government borrowing costs.

Recent data show yields on long term UK government bonds at their highest levels in nearly three decades, further fuelling anxieties about public finances. Simultaneously, the pound has faced renewed downward pressure. These trends of higher borrowing costs and a declining currency mirror characteristics typically associated with emerging markets, underscoring a dramatic shift in sentiment towards the UK.

The Bank of America survey, which polled 165 fund managers overseeing assets worth 426 billion US dollars, indicates that this movement away from UK equities is specific to Britain. On a global scale, fund managers have otherwise increased their exposure to global equities, reaching a seven month high, despite a record proportion of respondents believing global markets are currently overvalued.

Despite profound pessimism about the UK, the outlook for the global economy is showing marked improvement. Only a net 16 per cent of managers expect global economic weakness in the coming year, a significant positive swing from 41 per cent the previous month—the most dramatic improvement in sentiment since October last year. Fears around global trade wars have also abated, bringing some measure of relief to global markets.

Among European markets, Germany and Spain are proving most popular with fund managers, leaving the UK as a standout contrarian recommendation. The Treasury maintains its commitment to removing barriers to investment and promoting growth, highlighting continued high trading levels for the FTSE 100. As policy makers prepare for a challenging November budget, the government will need to address both investor doubts and a potential forty billion pound shortfall in public finances.