European investor confidence rises in July, says State Street

The State Street Global Investor Confidence Index for July 2013 has gained 0.8 points to 107.6, following a rise in risk appetite among Asian and European investors.

The figures are published by State Street Global Markets, the investment research and trading arm of State Street Corporation.

It saw the biggest increase in risk appetite among Asian investors, where the index increased from 89.3 to 100.8.

For European investors the index climbed from 98.2 to 105.7.

However, in North America there was a slight decrease in risk appetite, as the index edged lower to 113.7 from 114 points.

The index figures are based on work analysing actuall buying and selling patterns of institutional investors. The bigger the allocation to equities, the higher the risk appetite, according to the methodology. A score of 100 is neutral – thus the latest figures suggest investors are still on balance more willing to invest in risky assets.

It also helps to explain the slight fall in confidence in North America, according to Harvard University professor Kenneth Food, who co-developed the index.

“This month, North American investors are more concerned with rapid run ups in stocks and interest rates. Last month’s risk-on view was that the interest rate increase doesn’t portend higher inflation nor higher growth – that it’s just a reduction in the rate-distortion caused by the Fed’s QEIII. Investors are back to a more realistic concern that, distortion or not, higher nominal and real rates translate into less credit extension, less leverage, and slower growth. This has been underscored by the results of the earnings season, which have been mixed. It’s also a reminder that the previously high rates of forecasted earnings growth are, at this point, in the unlikely positive tail.”

The bigger movements were noted among Asian and European investors, which for Paul O’Connell of State Street Associates, who also co-developed the index.

“There we see that there is light at the end of the tunnel of adjustment to slower Chinese, Japanese, and European growth. They seem to be saying that, in spite of higher interest rates globally, the developed-countries’ monetary authorities are most likely to act to reduce the risk of economic growth, responding with flexibility and stimulus on the downside and using the opportunity for faster growth to tighten and slim their balance sheets. As a result, the range of real economic growth outcomes is actually more limited than it has been in a long time.”

 

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