Lately it seems that every month brings new lows on both the U.S. and European measures of the UBS/Gallup Index of Investor Optimism. U.S. investors are grim -- but in Europe, things are even worse. An analysis of the last five quarters of investor optimism data in the United States and five European countries (Italy, Germany, Great Britain, France, and Spain) shows just how bad things are.
Overall Index
Overall, American investors are far more optimistic than Europeans. In the first quarter of 2002, American investor optimism was at 109, 27 points below the Index's baseline measurement. By the last quarter of 2002, when the Index hit 41, a score of 109 looked healthy. In the first quarter of 2003, the U.S. Index slid to 17.
In 2002, British investors were the most optimistic in Europe. Overall, investor optimism in Great Britain hovered in the 50s through the first two quarters of 2002, and dropped to the teens through the last two quarters. By the first quarter of 2003, the overall optimism score among Britons was down to -26.
Compared to the rest of Europe, however, British investors were positively cheery. Overall, Italian investor optimism was at 49 in the first quarter of 2002, while Germany, France, and Spain were at 12, 9, and 16, respectively. By the end of the year, all four countries were deep into negative territory. Germany and Italy were the lowest (-52 each); France and Spain dropped to -34 and -25, respectively.
Economic Dimension
Uncertainty about the war with Iraq killed what little optimism there was on the Economic Dimension of the Index, which measures investors' assessments of their national economies.
American investors started the first quarter of 2002 at 31 and gradually lost hope, arriving at -19 in the first quarter of 2003. British investors started 2002 at 2 on the Economic Dimension, moving up to 12 in the second quarter and down to -5 by the fourth quarter. British optimism plummeted farther, to -33, in the first quarter of 2003.
In Germany, optimism on the Economic Dimension lingered in the negative 30s for the first three quarters of 2002 (-33,-32,-38), then took a turn for the worse, arriving at -60 in the first quarter of 2003. In France, the Economic Dimension started 2002 at -16, increased to -5, and decreased progressively through the start of 2003 (-23, -38, -56).
Italian and Spanish investors are neck and neck in the race down the Economic Dimension of the optimism scale. Italian investors were in positive territory in the first quarter of 2002 (11), whereas those in Spain were at -18. By the third quarter of 2002, both countries were in the negative 20s, and the fourth quarter brought a slide to -49 in Italy and -35 in Spain. Both countries began 2003 in the negative 40s (Italy at -49, Spain at -45).
Personal Dimension
The Personal Dimension of the Index, which measures investors' assessments of their own households' financial situations, is the most predictive of investor sentiment.
Italian investors' confidence along the Personal Dimension stood at 38 in the first quarter of 2002, but it slipped over the course of the year to 24, then 6, then -3. By the first quarter of 2003, Italy was the only EU5 country in negative territory (-9). Optimism on the Personal Dimension among German, French, and Spanish investors followed similar trajectories. Germany was among the most optimistic in the first quarter of 2002 (45), France was at 25, and Spain was in the middle at 34. By the beginning of 2003, however, they were all within nine points of each other, and were precariously perched in positive territory (Germany at 1, France at 7, and Spain at 10).
America and Great Britain were, as per usual, the most optimistic. In the first quarter of 2002, U.S. investors were at 78, and finished the first quarter of 2003 at 36. British investors showed a similar pattern, but were never as optimistic. British optimism on the Personal Dimension was at 52 in the first quarter of 2002, and finished the first quarter of 2003 at 7.
*Results for the Index of Investor Optimism -- EU5 are based on interviews with approximately 200 investors each in France, Germany, Great Britain, Italy, and Spain conducted monthly between January 2002 and February 2003. The interview composition was 58% larger investors (50,000 euros or more) and 42% smaller investors (less than 50,000 euros). In addition to sampling error, question wording and practical difficulties in conducting surveys can introduce error or bias into the findings of public opinion polls.
