'Hype' Indicators Point To Equity Recovery In Q1
![Sentiment towards equities has escaped 'despondency' territory, the Hype Cycle report claimed Sentiment towards equities has escaped 'despondency' territory, the Hype Cycle report claimed](/w-images/9de5195c-b928-4851-b51b-0a8fb651d635/3/iwmarketriseequities016-580x358.jpg)
Sentiment towards equities has escaped 'despondency' territory, the Hype Cycle report claimed
A divergence in investor behaviour is pointing towards a recovery for equities in Q1 2019, according to research by Fidante Partners, with sentiment and fund flow data indicating the asset class is no longer in 'despondency' territory.
In its quarterly Hype Cycle report, which analyses investment hype in financial markets via Google searches, ETF flows and the premium over the net asset value of relevant investment trusts, the firm said the basis for its equity recovery prediction was rooted in investor behavioural patterns.
What will December's sell-off mean for investors in 2019?
It said that although retail investors were being "excessively pessimistic" about equity markets, institutional investors had been putting money to work to benefit from recent lower prices. Historically, trends like this indicate a boost to stockmarkets in the coming quarter.
In its previous report, the Q4 Hype Cycle said equities were in 'despondency' territory due to a combination of negative price momentum and pessimistic investor sentiment. However, this has since been upgraded to 'overhyped'.
Joachim Klement, head of investment research at Fidante Partners, said: "Equity markets as well as other risk assets have corrected in the fourth quarter of 2018 and the question on everyone's mind is: 'Is it too soon to buy or should we even sell into this decline?'
"Our research analyses the sentiment and fund flow data in global equities, and [as a result] past evidence points towards these situations as indicative of a recovery in the next three months."
BofAML survey: Managers warn of secular stagnation (but not a recession)
This was in contrast to most other asset classes, which were categorised as in 'despondency' this quarter following the strong correction at the end of 2018.
The only other asset class to escape the 'despondency' label was gold, which was classed as being in a 'boom' due to increased investor demand and a recovery in the fourth quarter.
The report noted: "This widespread despondency indicates it might to be too soon to buy into risk assets. However, there are two asset classes that are not in the despondency quadrant that allow a deeper investigation.
"Global equities, as well as high dividend stocks, are currently characterised by negative price momentum but positive investor hype.
"Could it be this combination, which normally characterises an overhyped market, might indicate the green shoots of a recovery?"
Fund flows in December suffer worst month since October 2016
The report also puts together a specific Equity Hype index and said this was registered as negative or neutral. When combined with an excessively pessimistic retail sentiment, this was a strong indicator of high equity market returns.
"When the Equity Hype index is close to zero, while retail sentiment is very pessimistic, this indicates a situation where retail investors are scared for no reason. In this environment, it is typically better to remain invested and wait for a recovery in stockmarkets," it said.
Mitigating Risks In The Bond Market: Strategies For Uncertain Times
In today's volatile bond market, characterized by liquidity concerns and rising interest rates, effective risk managemen... Read more
UK High Street Banks Rake In £9.2 Billion In Interest On BoE Reserves: A Closer Look
In the intricate world of finance, where numbers often tell compelling stories, one recent figure stands out: £9.2 bill... Read more
Powell's Pledge: Federal Reserve Chair Signals Prolonged Period Of Higher Rates
Federal Reserve Chair Jerome Powell's recent statements have stirred significant interest in financial markets, particul... Read more
European Funds Body Throws Support Behind French Capital Markets Union: Implications For Brexit-Era Finance
In a significant development for European finance, a European funds body recently threw its support behind the French ca... Read more
Federal Reserve's Rate Decision: Navigating Economic Uncertainty
The recent decision by the Federal Reserve to adjust interest rates has sparked significant interest and speculation amo... Read more
Building Bridges: Strengthening Investor Confidence Through Enhanced Risk Data In Emerging Markets
In the dynamic landscape of emerging markets, investor confidence plays a pivotal role in driving economic growth and pr... Read more