Cash savings exodus predicted amid stocks and shares optimism

Schroders today announced the results of its 2024 financial advisers survey which shows a majority of the advisers polled predict a cash exodus over the coming months.

Cash savings have been a popular investment choice over recent years, as high interest rates have meant the best savings accounts have offered returns of over 5% on cash holdings.

However, the Schroders survey suggests that financial advisers expect that to change next year, with stocks and shares predicted to provide superior returns to cash savings.

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67% of respondents to the survey said they expected clients who had previously been holding cash to turn to investing it. This is a notable increase from the 49% who gave the same answer when the survey was last conducted, six months ago.

Just 23% said they did not expect clients to start investing their cash holdings.

It tallies with findings that less than 10% of advisers expect their clients to increase their allocation to cash over the next 12 months, compared with nearly 40% that expect them to decrease it.

“It is particularly encouraging to see this year’s results reflecting a renewed sentiment towards investing,” said Jame Fowler, head of regional and advisory sales at Schroders. “While clients are generally more bullish, a substantial proportion still remains neutral, highlighting the critical role of advisers in navigating ongoing volatility.”

The survey, which is conducted twice annually and is now in its fifteenth year, polled 293 financial advisers online between 23 October and 5 November 2024. As such, respondents had factored in the impact of the Autumn Budget, but did not yet know the result of the US election.

Time to buy UK equities?

While predicting a reduction in cash holdings, financial advisers expect the stock market to outperform next year, and UK equities in particular are tipped to enter a bull market.

Over 35% of financial advisers expect their clients to increase their investments in UK equities over the next 12 months, compared to less than 10% who expect a reduced allocation. That marked a higher proportion of advisers expecting an increased allocation out of all asset classes included in the survey, with cash coming bottom of the list.

“Advisers [are] increasingly focusing on equities and seeing opportunities especially within the UK,” said Fowler.

In terms of the proportion of advisers expecting an increase in client allocations, the second highest asset class was developed international equities, which around a third of advisers expected to see an increase in client allocations, followed by emerging markets, which approximately a quarter of respondents expected to see increased investment.

Stuart Podmore, investment propositions director at Schroders, told journalists at an event covering the survey results that emerging market earnings expectations for the next 12 months are strong, and compare favourably with the US.

23% of survey respondents expected higher equity market returns over the next five years compared with long term historical averages, while 18% said they expected equity markets to return less than they had historically over the same period. While this still reflects positive net sentiment, it does mark a bearish slide since six months ago, when 28% predicted higher returns and 14% said they expected lower returns from equities.

However, it is possible that this sentiment will have been boosted by the re-election of Donald Trump immediately after the survey took place, which appears to have injected optimism into the US stock market in particular.

Are markets becoming more volatile?

There were cautionary signs for investors from the survey. For one thing, a significant proportion of advisers expect an increase in market volatility over the next five years. 43% indicated that they expected market volatility to increase over this period – up from 38% six months ago – compared to just 6% that said they expected market volatility to fall.

While advisers expect global growth to increase over the next five years – 57% indicated that they believe it will rise compared to 8% projecting lower global growth – there is an increasing expectation that this growth will come with some choppiness.

70% of respondents said that they expect geopolitical disruption to increase over the next five years, reflecting what Schroders calls “an increasingly unpredictable international environment”. Just 3% said that they expect geopolitical disruption to fall.

35% of respondents expect a retreat in globalisation, a figure which would presumably be higher had the survey been conducted after Trump indicated that he plans to impose tariffs on Mexico, Canada and China.

Substantial majorities of respondents also indicated that they expect technological advances and changes in the environment, including climate change, to cause increased disruption over the next five years – although, notably, both were down slightly since the survey was last carried out.