Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Private UK investors look set to have withdrawn the highest amount in more than two decades from London-listed equities by the end of 2023 as the cost of living crisis bites, further compounding a flight from the local market.
British retail investors had sold down £11.9bn worth of shares in London-listed companies by the end of October, according to the latest data from the Investment Association, just short of the £12bn in the whole of 2022, which was the largest outflow in 20 years.
Stockbrokers and analysts blame the exodus on a combination of cost of living pressures, higher mortgage rates and the poor performance of the UK equity markets relative to the US and to fixed-income products.
The FTSE 100 index is up just 2.1 per cent since the start of the year, while the S&P 500 in the US was up 25 per cent by midday on December 28.
“Investors have thought twice about investing this year,” said Richard Flynn, managing director of brokerage Charles Schwab UK. “We’ve seen evidence of clients taking money out to meet short-term needs this year. There’s been an element of a retreat to safety, look at immediate needs rather than long-term goals.”
In a survey by the brokerage earlier this year more than half of those surveyed said they were scaling back their investment plans due to the cost of living, with younger investors especially nervous about cost and performance.
Wealth and asset managers said their clients were increasing cash withdrawals from their platforms to meet their financial needs. “Platforms have also reported increased withdrawals as investors take out money. I suspect this trend will continue into 2024,” said Holly Mackay, founder of consumer finance website Boring Money.
More than a third of respondents to the Charles Schwab survey said the biggest reason for pulling money off the platform was to pay bills, with just 10 per cent of people moving into cash savings and 2 per cent expressing concern about markets.
Bestinvest, an investment platform owned by UK wealth manager Evelyn Partners, said that withdrawals were “running modestly higher this year than 2022”.
Bestinvest managing director Jason Hollands said: “People ultimately invest to achieve real world goals, including paying off mortgages where they expect to see a significant increase in remortgaging costs.
“It’s not surprising that in the current environment, some clients are drawing down on their investments to pay bills or reduce debts given the pincer-like squeeze on household finances from rising prices and higher 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”.
The latest official data to the end of 2022 shows that British retail ownership of UK equities had hit a historic low, while foreign ownership of London-listed stocks had soared, according to the Office for National Statistics.
Analysts warned that retail investors’ enthusiasm for the UK equity market may remain muted for some time. “There’s definitely money flowing out of UK strategies this year,” said Michael Field, equity markets strategist at financial data provider Morningstar. “The UK was a disproportionate share of [retail] investing for many years, now there’s a rebalancing, moving into global and US indices.
“In the UK you’re not seeing signs of consumer health; metrics like food bank usage, shoplifting show that the cost of living crisis is really biting . . . you’re looking at another six months of pain for consumers before things start to ease up,” he added.