Investor Confidence Index falls by 5.6 points in October – State Street

The Global ICI fell to 95.7 in September, down 5.6 points from September’s revised reading of 101.3, State Street latest report revealed.

The decline was driven by sentiment in North America, which fell substantially by 17.8 points, pushing the North American ICI well into pessimistic territory at 86.5. By contrast, confidence improved substantially among European institutional investors, reflected in a 10.2 point increase in the European ICI to 111.9. Asian investors stayed their course, and as a result the Asian ICI saw only a modest change, rising 0.9 points to finish at 96.2.

The Investor Confidence Index was developed by State Street Associates, State Street Global Exchange’s research and advisory services business, and Harvard University professor Kenneth Froot. It measures investor confidence or risk appetite quantitatively by analyzing 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.

“The fiscal showdown in the US clearly took the wind from the sails of institutional investors, pushing the Global ICI into negative territory for the first time since May of this year,” commented Paul O’Connell. “Notwithstanding the 11th hour resolution of the immediate crisis, investors are aware that the long-term fiscal policy of the US remains to be negotiated, and that the impact of such negotiations on growth and confidence is yet to be seen.”

“The fact that the North American ICI posted a record fall in the same month that the European ICI posted its largest gain in almost three years tells you all you need to know about how policy perceptions are changing between the two areas,” added Michael Metcalfe, head of cross strategy research at State Street Global Markets. “With European confidence at its highest level since July 2007, investors hope that the worst of the eurozone crisis is past. The US crisis of confidence, in contrast, may just be the beginning, unless policy uncertainty is reduced.”

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