Much is made about the public’s growing mistrust of our state institutions. From Fleet Street to Whitehall – and even the previously sacrosanct NHS – public trust has been eroded. And this disenchantment has been reflected in survey after survey. In a study by the Policy Institute at King’s College London, the UK fares poorly in comparison with other countries surveyed on confidence in the government, political parties, parliament and the civil service.
This mistrust also extends to the Bank of England (BoE). A separate survey of UK-based retail investors conducted by HYCM, an online provider of trading services, shows that only 39 per cent of respondents trust the BoE’s decision-making process, albeit 42 per cent think the central bank is right to continue its rate-hiking cycle.
It may seem surprising, but attitudes towards private industry are more charitable. At least that’s the chief takeaway from the latest edition of the Edelman Trust Barometer – the eponymous company’s 23rd annual trust and credibility survey. The report states that trust in business, after tanking at the height of the global financial crisis, has subsequently recovered to the point where it is “now the sole institution seen as competent and ethical”. That seems curious when set against a range of issues that has undermined investors' confidence in recent times, not least of which is the ongoing saga linked to the audit crisis.
The survey goes on to state that “business is under pressure to step into the void left by government”. What that means and who’s applying this pressure is open to conjecture. Edelman is also the world’s largest public relations consultancy, so it wouldn’t be unreasonable to question whether the latter statement was the result of objective analysis, or whether it simply boils down to advocacy. He who pays the piper.
Whatever the reality, it’s worth examining whether public cynicism has fed into the malaise in the UK equity market, perhaps by suppressing investor appetite. On that basis alone, it has relevance where private investors are concerned, even though there are obviously a great many influential factors on this score.
Indeed, Peel Hunt – in keeping with the ongoing debate – recently outlined several practical measures the broker believes could turbocharge the UK equity market. These range from supply-side reforms to the requirement for a portion of individual savings account (Isa) and self-invested personal pension (Sipp) to be invested in UK equities in return for tax benefits. It’s a welcome and well-thought-out contribution to the debate, particularly given that a lack of domestic appetite is at the heart of the problem. All this comes at a time when UK equities are attractive when set against historical and relative comparators.
We shouldn’t forget that private investors have an outsized influence on stock market indices, a point that was amplified in the wake of the pandemic. So, the question of trust is certainly material where valuations are concerned. Then there’s the impact of the digital transition. The Bank of International Settlements notes that in January 2021 “equity prices rose and fell as retail investors coordinated their trading on specific stocks through social media… while online chat rooms were already a popular means of information exchange in the late 1990s, the trebling of the number of US internet users and the rise in no-fee brokerages since then has widened the pool of traders who can combine their efforts”.
When assessing the degree to which investor trust impacts valuations, it helps to take a granular approach. Some of the more illuminating breakdowns of attitudes are contained in the 2022 CFA Institute Investor Trust Study. It looks at the attitudes of 3,588 investors across the globe with investible assets of at least $100,000 (£81,600). The study does support the notion that trust in financial services has improved among retail investors since the height of the pandemic. But there are contrasting views within the general trend. Private investors have demonstrated continued trust towards the consumer banking sector, "a core service that most depend on for everyday activities”. By contrast, less than one-third trust digital platforms that provide automated, algorithm-driven financial planning. Across the wider spectrum, the medical and broader technology sectors attract the highest levels of support, whereas media, entertainment and telecommunications remain out of favour.
One of the more interesting – and encouraging – conclusions is that trust levels have improved because new apps and tools have eased access to markets, “especially at smaller asset levels and for an increasingly younger investor base, who have higher trust levels”.
