UK-focused equity funds experienced a significant withdrawal of £666 million in September.
- Labour’s economic outlook is perceived as pessimistic, affecting investor confidence.
- Global investors saw a net pullback of £564 million from fund holdings, ending a strong inflow period.
- Equity income funds linked to UK equities lost £416 million, marking a downturn since 2021.
- Chancellor Rachel Reeves attributed economic challenges to past Conservative policies.
New figures from Calastone, a global fund network, reveal that UK-focused funds faced net withdrawals amounting to £666 million in September. This outflow occurred while other geographically diversified fund sectors experienced inflows, reflecting a broader shift in global investor sentiment. Overall, there was a net drawdown of £564 million from worldwide fund holdings, which concluded a previous ten-month period characterized by near-record inflows.
This downturn is attributed to the perception of Labour’s economic stance as overly negative. Since assuming office in July, Chancellor Rachel Reeves and Prime Minister Sir Keir Starmer have been critiqued for presenting a bleak financial narrative. The City has expressed concerns over their depiction of the public finances. Reeves has highlighted the challenging conditions inherited from the prior Conservative administration, noting a significant £22 billion ‘black hole’ in the public accounts.
Edward Glyn, head of global markets at Calastone, commented on the implications of the government’s outlook, stating that their “rather pessimistic commentary” had dimmed the emerging interest in UK equities seen in July. He remarked, “UK-focused funds seem to be off the menu for investors for the time being.” Reinforcing this sentiment, recent indicators show a notable decline in consumer confidence to its lowest since January, alongside a drop in optimism among manufacturers, comparable to early pandemic levels.
In addition to the equity market withdrawals, significant outflows have been recorded in fixed income funds, according to Calastone’s data. These outflows, the largest on record in a decade, have been driven by the anticipation of interest rate cuts by central banks worldwide. Such adjustments in monetary policy, including a 50 basis point reduction by the US Federal Reserve and potential rate cuts by the European Central Bank and the Bank of England, underline a global trend towards easing financial conditions as inflation pressures subside.
As the budget announcement approaches on October 30th, expectations are that fiscal adjustments will include tax increases, but these will be accompanied by ramped-up public investment initiatives. Investors are closely monitoring these developments, maintaining a cautious stance on UK equities amid the prevailing economic dialogue.
The cautious investor sentiment towards UK equities underscores the impact of perceived economic pessimism and forthcoming fiscal policies.
