Private investors in the UK are on track to make the largest withdrawal from London-listed equities in over two decades by the close of 2023. The escalating cost of living crisis is intensifying this trend, contributing to a significant flight from the local market.

According to the latest data from the Investment Association, British retail investors had divested £11.9 billion worth of shares in London-listed companies by the end of October. This amount falls just shy of the £12 billion recorded for the entire year of 2022, marking the highest outflow in 20 years.

Analysts attribute this exodus to a combination of factors, including the pressures of the cost of living, higher mortgage rates, and the lackluster performance of UK equity markets compared to the US and fixed-income products. While the FTSE 100 index has only seen a 2.1% increase since the start of the year, the S&P 500 in the US registered a 25% surge by midday on December 28.

Richard Flynn, Managing Director of brokerage Charles Schwab UK, commented, “Investors have thought twice about investing this year. 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.”

A survey by Charles Schwab earlier this year revealed that more than half of respondents were scaling back their investment plans due to the cost of living, with younger investors particularly concerned about costs and performance.

Wealth and asset managers have reported an increase in cash withdrawals from their platforms as clients seek to meet their financial needs. Holly Mackay, Founder of consumer finance website Boring Money, predicts that this trend will likely continue into 2024.

According to Bestinvest, an investment platform owned by UK wealth manager Evelyn Partners, withdrawals are “running modestly higher this year than 2022.” Bestinvest Managing Director Jason Hollands explained, “People ultimately invest to achieve real-world goals, including paying off mortgages where they expect to see a significant increase in remortgaging costs.”

Hargreaves Lansdown, the largest investment platform in the UK, stated that clients withdrawing cash were doing so for “cost of living and financial need.”

Official data through the end of 2022 revealed that British retail ownership of UK equities had reached a historic low, while foreign ownership of London-listed stocks had surged, according to the Office for National Statistics.

Analysts caution that retail investors’ enthusiasm for the UK equity market may remain subdued for some time. Michael Field, Equity Markets Strategist at financial data provider Morningstar, noted, “There’s definitely money flowing out of UK strategies this year. 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, and 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.
By Delino Gayweh
Serrari Financial Analyst
December 28, 2023