Europe: 'Substantial' Investors Feeling Gloomy

by Jennifer Robison, Contributing Editor

Money may not be able to buy happiness, but it can buy security -- and the more money one has, the more secure one is likely to feel. That sense of wellbeing may be why investors with substantial amounts of money in the market tend to be more optimistic than investors with less money. But the February UBS/Gallup Index of Investor Optimism -- EU5* shows that Europe's gloomy economy may be undermining the security and optimism of all investors.

The Index of Investor Optimism -- EU5 explores investor optimism in five major European markets (Great Britain, Germany, France, Spain, and Italy). In comparing the optimism of "substantial" investors (those with €50,000** or more in savings and investments) to "average investors" (those with less than €50,000), the data indicate that substantial investors are generally more optimistic than average investors, but not by much, and sometimes they are less optimistic.

Overall Optimism

In February 2002, the overall Index stood at 22 for those with €50,000 or more invested, and 23 for those with less than €50,000. (The February 2002 numbers were outside the norm for substantial investors, who were at 53 the month before and were 15 points to 30 points higher than average investors throughout the last 14 months. Average investors were at 26 in January 2002). The optimism of average investors was steadily siphoned away over the next 12 months, arriving finally at -53 in February 2003. Substantial investor optimism dropped too, in a similar pattern. By last month, it stood at -42.

Economic Dimension

It appears that in Europe, as is in America, the Economic Dimension of the Index (which measures investors' assessments of their national economies) is driving investor optimism into the ground. Optimism on the Economic Dimension among average-level investors was at -13 in February 2002 and slid steadily downward all year, hitting -54 last month. Substantial investors showed a similar trajectory on the Economic Dimension, but were slightly less pessimistic. In February 2002, they were at -18, then hovered a few points above average investors all year. By last month, they were at -45.

Personal Dimension

It's always reassuring to look at the Personal Dimension of the Index (which measures investors' assessments of their own household's financial situations) because, even in Europe, it's usually higher than the Economic Dimension and more predictive of future optimism. This trend holds true for both substantial and average European investors. Still, their optimism on the Personal Dimension isn't exuberant by any means. Between February and May 2002, average investors lingered between 36 and 26 on the Personal Dimension. Between June and September, optimism stayed between 10 and 13, and only dropped into negative territory once in October (-1). In February 2003, average investor optimism on the Personal Dimension was at 1. Among substantial investors, optimism on the Personal Dimension dwindled from 40 in February 2002 to 25 in August, and arrived at 3 in February 2003.

Bottom Line

Clearly, Europe's economy is in similar straits to that of America. The war in Iraq will have some effect on both economies, but no one really knows how much. Last week, the European Central Bank admitted that it couldn't predict the effect of the war on the economy, though it did promise to provide "sufficient liquidity even under exceptional circumstances" to the financial markets. Perhaps that's as much security as European investors are going to get, for any price.

*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.

**Amounts presented in euros.

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