By the end of 2023, private UK investors are expected to have pulled the largest amount of money in over two decades from London listed equities as the cost-of-living crisis continues to bite. This will further compound a flight away from the local market.
According to the latest Investment Association data, British retail investors sold off £11.9bn of shares in London listed companies by the end October. This is just shy of the £12bn that will be spent in total in 2022. It was the biggest outflow for 20 years.
Stockbrokers blamed the exodus of Brits on the high cost of living, the higher mortgage rates as well as the poor performance of UK equity markets compared to US fixed income products and the US equity markets.
The FTSE 100 is only up 2.1% since the beginning of the year. In contrast, the S&P 500 index in the US had risen 25 percent by the midday hour on December 28.
Richard Flynn is the managing director at Charles Schwab UK. He said that investors have been hesitant to invest this year. We’ve seen clients withdrawing money to meet their short-term financial needs in this year. There is a tendency to retreat into safety and focus on immediate needs, rather than long-term objectives.
A survey conducted by the brokerage in early this year revealed that more than half the respondents were reducing their investment plans because of the rising cost of living. Younger investors, especially, expressed concern about the performance and cost of the investments.
Asset managers and wealth advisors said that their clients are increasing withdrawals of cash from their platforms in order to meet their financial requirements. Platforms have reported an increase in withdrawals due to investors withdrawing money. Holly Mackay, the founder of Boring Money’s consumer finance website, predicts that this trend will continue until 2024.
In the Charles Schwab survey, more than a third said that the main reason they took their money out of the platform was in order to pay for bills. Only 10% of respondents moved to cash savings while 2% expressed concern over the markets.
Bestinvest, a platform for investment owned by UK wealth management company Evelyn Partners said that withdrawals are “running modestly more this year than in 2022”.
Bestinvest’s managing director Jason Hollands stated: “People invest to achieve their real-world goals, which include paying off mortgages when they expect to see an increase in remortgaging fees.
It’s not surprising, given the squeeze on household finances caused by rising prices and increased borrowing costs.
Hargreaves Lansdown, the largest investment platform in the UK, said clients that were withdrawing cash were doing so for “cost of living and financial need”.
According to the Office for National Statistics, the latest data up to 2022 show that British retail ownership in UK equities has reached a record low. Meanwhile, foreign ownership in London-listed stocks has risen.
Analysts warn that the enthusiasm of retail investors for the UK equity markets may be muted for a while. Michael Field, equity market strategist at financial data provider Morningstar, said that money is definitely flowing out of UK-based strategies this year. “For many years the UK had a disproportionate amount of retail investing. Now there is a rebalancing and a move to global and US indexes.
“In the UK, you don’t see any signs of consumer health. Metrics like food banks usage and shoplifting shows that the cost-of-living crisis is really biting. . . You’ll have to wait another six months for things to start to improve,” he said.