The divergence in investor sentiment between developed and emerging markets widened further last week. Sentiment in the US and developed Europe is now firmly in the bearish zone, with those of the developed world and Japanese investors just managing to remain at the bottom of the neutral zone, for now.
Investor sentiment across global developed markets, the US, Europe and Japan weakened further last week, falling into or near the bearish zone (although Japan did recover somewhat in the last two days). In contrast, investor sentiment across global emerging markets, Asia ex-Japan and China strengthened further, rising to the upper region of the neutral zone.
The mood of investors in Q3 2021 was decidedly undecided—and increasingly skeptical. Questions about the strength of the economic recovery, persistent inflationary pressures, the world’s ability to overcome the pandemic, and the timing of any tapering efforts by major central banks kept sentiment on the negative side of the neutral zone.
Investor sentiment weakened further last week in all markets we track. The global decline in sentiment is weighing on markets and preventing a sustainable rebound from the corrections experienced in September.
Investor sentiment has returned to the neutral zone, but continues to reflect an uneasy feeling about proclamations exhorting the post-pandemic’s positive impact on the economy while ignoring the continued spread of increasingly more virulent variants.
Sentiment in five of the seven markets we track has fallen into the bearish zone, and were it not for a decline in volatility, the US market would also show a bearish mood. Only Japan seems to not have gotten the memo and is bucking the trend with cautious optimism.
Investor sentiment continues to tread at the bottom of the neutral zone across all markets we track. Persistent uncertainty about the strength of economic growth is weighing on investors’ risk appetite and pushing sentiment closer to the bearish zone.
Last year, 2020, the uncertainty caused by the COVID-19 pandemic was replaced by the certainty of monetary and fiscal stimulus, the somewhat messy but essentially positive US presidential election results, and the clear sector allocation choice between the so-called pandemic profiteers versus the pandemic sufferers. Even the multiple vaccine news in early November pointed the way to a rotation trade with bright neon lights. This made 2020 the year of Go-Big-or-Go-Home. The first half of 2021 has been a very different story.
Investor sentiment remains in indecision land across all markets we track. And if you are a regular reader of these highlights (we’ll go with that assumption for now), then you’ll know that sentiment, globally, has been stuck between slightly negative and slightly positive for the past four weeks.
Investors remain trapped at the intersection of rising inflation and slowing economic growth – two worries that when combined at their extreme, makes them think of stagflation. And while no-one is using the s-word yet, this lack of clarity continues to negatively affect the collective unconscious.