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Share trading craze hit by cost of living crisis

By Farah Khalique

THE worsening cost of living crisis has dampened small investors’ enthusiasm for share trading, a leading broker has warned.

Andy Bell, chief executive of investment platform AJ Bell, said the impact of rising inflation was likely to cause ‘a potential shortterm headwind for inflows’ onto its platform as the squeeze erodes the spare cash that consumers put aside to pour into markets.

His warning comes as the FTSe250 company, which allows customers to trade shares and buy funds, posted a decline in half-year profits to £26.1m, from £31.6m a year ago.

AJ Bell boomed during the pandemic as young investors with time on their hands flocked to stock markets to try and take advantage of historically low prices. But Bell said yesterday: ‘No one ever thought it would carry on indefinitely. We are seeing dealing activity align with pre-Covid levels, dealing frequency has normalised.’

Bell added that the rising cost of living is likely to have reduced the amount of money people have available to invest. He said the savings ratio will probably fall back. This would mean a possible short-term reduction in money flowing into shares and funds. Bell also said administrative expenses at brokers were likely to increase. As a result of the crisis fewer new customers flocked to AJ Bell over the period – it reported 35,555 new customers over the halfyear, versus 51,492 a year earlier. Revenues from transactional fees fell 17pc to £18.2m as dealing activity dropped off from ‘significantly elevated levels’ seen the year before, Bell said.

Young investors fuelled retail trading volumes during lockdown periods, which peaked at a daily average of around three times the pre-pandemic levels, according to rival investment platform Hargreaves Lansdown.

The combination of falling stock prices, furlough cash and ample time at home gave Brits the chance to sign up to DIY investment platforms and dabble in stock markets.

But now the tables have turned as the stock markets fall off a cliff and the cost of living crisis bites.

Inflation is at 9pc, its highest level in 40 years, forcing households to spend more on everyday living expenses like food and petrol.

Hargreaves Lansdown also told the Daily Mail that postpandemic trading volumes on its platform had fallen considerably in recent months.

Danny Cox, head of external relations at the business said: ‘We have operated in challenging markets with a macro-economic and geopolitical backdrop not seen for a generation.

‘Flows across the industry have been impacted by the market uncertainty as a result of the cost of living crisis, war in Ukraine and ongoing fallout from Brexit. We continue to see record numbers using their ISA allowances to ensure they protect their hard-earned savings from tax.’

In tough conditions, customers’ cash balances at trading platforms tend to creep up as savers hold back from reinvesting their income into stocks and shares, he added.

Many customers are also becoming more wary and shunning risky investments.

A spokesman for low-cost investment platform Interactive Investor told the Daily Mail that its customers have cooled on China in particular.

In the first three months of 2021, five of the top SIPP (selfinvested personal pensions) purchases were invested in China. Today that has shrunk to zero, as investors favour safer options. Jemma Jackson, head of PR at Interactive Investor, said ‘China is out of favour this year versus last year and wealth protection and inflation busting strategies are in favour.’

Manchester-based AJ Bell was founded in 1995 by Andy Bell and Nicholas Littlefair to manage actuarial, pension and trustee administration for people with small occupational retirement schemes.

The firm has since grown to become a leading DIY wealth management platform.

AJ Bell’s share price is down 29pc so far this year – in a sign that the retail trading boom is over – although it was up 7.9pc, or 20.2p, at 275.4p yesterday.

Hargreaves Lansdown’s share price has also plunged 37.42pc this year to 867.60p a share.

But yesterday its shares also bounced, and ended the day up 3.4pc, or 28.4p, to 854.8p.

City & Finance

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2022-05-27T07:00:00.0000000Z

2022-05-27T07:00:00.0000000Z

https://mailonline.pressreader.com/article/282900914212685

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