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Retail investors shrug off bear market blues: Two-thirds say downturn has not dented their investing appetite
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67% of global retail investors feel positive or ambivalent about the year-long bear market
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Many are loading up on defensive assets, like healthcare and utilities, whilst cash allocation jumped 50%
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Confidence rebounded in the last quarter as perceived threat of inflation falls
The majority of retail investors are shrugging off the downturn that has gripped financial markets for more than a year, according to the latest ‘Retail Investor Beat’ from social investing network, eToro.
When asked what impact the bear market has had on their mindset, 60 % are either positive or ambivalent (72% in Romania), while the remainder say their investing appetite has been dented to some extent.
2022 will have been the first major bear market for many less experienced retail investors, yet the data shows that it is older investors with shorter retirement time horizons who are feeling the strain the most.
Three in four (76%) 18-34-year-olds feel positive or indifferent about the downturn, whilst this drops to 60% amongst over-55s (see chart). Across all age groups, the younger the investor, the more upbeat they are about the 2022 bear market - challenging the perception that younger investors are more short-term driven. Romanian investors have a long term approach, too. Over 73% of the young ones took positives from 2022, dropping to 66% amongst the over-55s years category.
Commenting on the trend, Ben Laidler, Global Markets Strategist at eToro, said:
“The fact that two thirds of retail investors feel indifferent, or even more positive, after the worst year for markets in a generation might seem odd. But the majority of this cohort think in years and decades. For those with longer time horizons, the back end of 2022 has offered a chance to buy companies at lower valuations, improving the outlook for long term returns.”
Globally, there has also been an uplift in sentiment, with 69% feeling confident about their portfolios. Whilst still a relatively low figure compared to past Retail Investor Beats, it is a five percentage point quarter-on-quarter increase, while confidence in other areas of life such as income and job security also improved.
80% of the Romanian investors believe in their portfolios but the level of confidence dropped 4% compared to the previous quarter. But the confidence in the income level showed a sizable increase of 28% and job security showed a 9% increase to 68% in Q4.
One explanation for this is that the perceived threat of inflation is still high. At the end of Q3, 24% of Romanian respondents saw inflation as the single biggest threat to their portfolio over a three-month period, with this increasing to 28% in the last quarter of 2022. When asked about the biggest risk across the whole of 2023, 23% of the Romanian investors are fearing a global recession, followed by those fearing inflation (21%), 18% fearing an international conflict and 14% of the Romanian investors are worried by the evolution of the Romanian economy.
In preparation for this recession risk, many Romanian investors are adjusting their portfolios defensively whilst also preparing for future opportunities. The proportion holding cash assets jumped from 61% in Q3 to 78% at the end of Q4 - a 28% increase. Meanwhile two traditional defensive sectors - healthcare and utilities saw a different approach from investors: the percentage of people having shares in the healthcare companies decreased from 60% in Q3 to 47% in Q4 while for the utilities this number increased from 42 to 50%. Other defensive plays in the current climate - staple consumer goods and energy - saw almost 10% rise. In the first two most preferred industries by the Romanian investors we are also seeing a mixed behaviour, with reduction in the financial services sectors (6%) but a slight, 3 percentage point increase in the holdings in the technology sector.
“Romanian investors have a high confidence in their portfolios and increased their cash at the end of the year, probably taking some profits after the bear market rally from the lows of October 2022. They look to be well aware that most experts are predicting at least a mild global recession, and many are repositioning accordingly. There was also a significant dash for cash in the final quarter as banks around the world continued to pass on better rates to savers, albeit slowly, and investors kept some powder dry for market opportunities ahead”, said Bogdan Maioreanu, eToro market analyst for Romania.
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The Q4 Retail Investor Beat was based on a survey of 10,000 retail investors across 13 countries and 3 continents. The following countries had 1,000 respondents: UK, US, Germany, France, Australia, Italy and Spain. The following countries had 500 respondents: Netherlands, Denmark, Norway, Poland, Romania, and the Czech Republic.
The survey was conducted from 14th - 24th December 2022 and carried out by research company Appinio. Prior to Q2, previous waves of this survey were conducted quarterly in conjunction with Opinium.
Retail investors were defined as self-directed or advised and had to hold at least one investment product including shares, bonds, funds, investment ISAs or equivalent. They did not need to be eToro users.
About eToro
eToro is a social investment network that empowers people to grow their knowledge and wealth as part of a global community of investors. eToro was founded in 2007 with the vision of opening up the global markets so that everyone can trade and invest in a simple and transparent way. Today, eToro is a global community of more than 30 million registered users who share their investment strategies; and anyone can follow the approaches of those who have been the most successful. Due to the simplicity of the platform users can easily buy, hold and sell assets, monitor their portfolio in real time, and transact whenever they want.