Institutional investor confidence in equity markets falls

Investor Confidence Index shows divergence between Europe, Asia and US

Institutional investor confidence in equity markets falls

The confidence of institutional investors in the equity markets fell in February, according to the latest Investor Confidence Index (ICI) from State Street Global Exchange, the trading arm of quoted US financial services group State Street Corporation (NYSE: STT).

The Global ICI decreased to 105.2, down 1.4 points from January’s revised reading of 106.6.

Divergence

However, there was a marked divergence along geographic lines. Confidence among European investors declined the most, with the European ICI falling 8.2 points to 105.9, down from January’s revised reading of 114.1, while in Asia the ICI fell by 5.3 points to 93.8. However, the North American ICI rose by 3.1 points to 104.3.

The Investor Confidence Index was developed by Kenneth Froot and Paul O’Connell at State Street Associates, State Street Global Exchange’s research and advisory services business. It measures investor confidence or risk appetite quantitatively by analysing the actual buying and selling patterns of institutional investors. The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher risk appetite or confidence. A reading of 100 is neutral; it is the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets. The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors.

“Improved labour market conditions in the US may have boosted North America investor sentiment,” commented Froot. “However, given the lack of inflationary pressures in the US, markets may push out their expectation of the first interest rate hike to later than the previously anticipated June date, which could provide a lift to sentiment.”

“The confidence of European managers fell once again in February to its lowest level since last April,” added Michael Metcalfe, senior vice president and head of Global Macro Strategy, State Street Global Markets. “This suggests either that investors are not as complacent about events in Greece as some bond spreads suggest or that the promise of quantitative easing (QE) in Europe has proved more alluring than its reality. Neither interpretation is particularly good news.”

Learn more

If you’d like to learn more about the effects of QE in Europe read: European QE: why it can’t work

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About Author

Christopher Menon

Every Investor Editor Chris Menon is a financial journalist who has written regularly for national newspapers, magazines and websites about personal finance, with particular emphasis on investing.