Royal London Asset Management’s (RLAM) composite sentiment indicator has shown its first buy signal since the French elections in April.
The composite indicator is a proprietary model looking at market and investor behaviour.
Analysis using the indicator suggests it is generally a good idea to buy stocks when the indicator gets to a reading of -1 or lower.
The indicator measures market investor behaviour in terms of:
- Price momentum – equity markets tend to bounce after a short-term drop;
- Volatility – increased uncertainty can create good buying opportunities;
- Retail investors – excessive bearishness can set the scene for a market rally;
- Company directors – company directors tend to buy shares in their own companies when the market is too depressed;
Trevor Greetham, head of multi-asset at RLAM, said: “After months of calm investors are starting to get rattled by geopolitical events with the standoff with North Korea and large-scale protests in the US causing some disquiet.
“It pays to buy when others are fearful and we are starting to add to the equity positions in our multi-asset funds, increasing our overweight positions there.”
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