There are plenty of reasons for global investors to be fearful yet somehow the State Street Investor Confidence Index (ICI) rose in September.
- The trade war between US and China. That's not a reason to be confident about the prospects for global commerce.
- Brexit? Ditto.
- Rising tensions in the Middle East, leading to a sharp increase in the price of oil. That's going to bite a lot of companies in the derrière over the next year or so.
- The increasing desperation of central banks as they don Mother Hubbard's clothes and go to the cupboard one more time for that policy stimulus that is going to add a bit more grease to the wheels of global industry. That particular three-card trick is going to stop working eventually, if it hasn't already.
- What about the rise of demagoguery, a phrase I heard at school when studying Ancient Greece and never expected to see again in adult life? I'm seeing it everywhere, now, and not really enjoying it unless I have just laid the word down on a Scrabble board on a triple-word score space.
Can't we just prorogue equity markets until sanity returns?
Despite all of the above, US and UK indices continue to make progress, venturing further and further up the hill, like Jack and Jill.
Investors may not be guilty of what former Federal Reserve chairman Alan Greenspan called “irrational exuberance” but the latest Global Investor Confidence Index reading certainly seems like irrational confidence.
The index increased to 80.1, up from August’s revised reading of 76.8. The improvement of sentiment was driven by an 18.5 point rise in the European ICI to 107.6, presumably after European Central Bank (ECB) president Mario Draghi marked his farewell tour as boss of the ECB by lowering the bank's deposit rate to minus 0.5% and announcing that a quantitative easing scheme of €20bn a month will kick off on November 1 for as long as needed.
At least the North American ICI had the decency to decline, from 73.5 to 71.8, while the Asian ICI decreased from 89.3 to 87.4.
“Global investor confidence rebounded modestly in September as central banks everywhere stepped up their efforts to provide accommodations and hopes of a trade truce rose again,” said Michael Metcalfe, senior managing director and head of Global Macro Strategy at State Street Global Markets.
“This is nothing to get too excited about just yet, though,” he added.
“The index is still only marginally above where it began 2019 and remains significantly below the all-important 100 level, which would be consistent with investors adding to their risky asset holdings. Just like purchasing managers in manufacturing, investors remain cautious, but marginally less so this month,” Metcalfe said.
So, it turns out that investors are not so daft, after all.
You might have already missed the boat with UK equities
On the other hand, State Street's Kenneth Froot, who co-developed the index, noted that “the outsized European uptick in investor confidence is being driven primarily by reallocation toward the UK”.
Apparently, “professional managers seem to believe that the FTSE, [which had fallen 10% since July- back to pre-Brexit-vote levels in 2015] is a buying opportunity and a temporary one at that. As of this reading, the strong September buying we saw earlier in the month has diminished as equity prices have risen. These flows and price fluctuations are understandably volatile given the ongoing updates on the probability of an ill-prepared no-deal Brexit,” according to Froot.
Meanwhile, in the UK we have had three profit warnings on one morning from blue-chip companies: British Airways owner International Consolidated Airlines (LON:IAG), ciggies and e-cigarettes maker Imperial Brands PLC (LON:IMT) and educational publisher Pearson PLC (LON:PSON).
There's no real unifying theme in the profit warnings except maybe a desire on the part of management teams to set demanding growth targets.
The best-laid plans can be disrupted by what former UK prime minister Harold MacMillan called, “events, dear boy; events” and the events that bashed IAG, IMPs and Pearson are disparate.
Disparate but still, perhaps, slightly worrying.