Investor Confidence Index rises by 1.8 points

The Global ICI rose 1.8 points to 94.8 from April’s revised reading of 93.0, the results of the State Street Investor Confidence Index (ICI) showed.

The primary driver behind this gain was a shift in risk appetite among European institutions with the European ICI rising 5.6 points to 93.3 from the revised April reading of 87.7.

Confidence also increased slightly among Asian institutions with the Asian ICI index ticking up to 86.0 from April’s reading of 85.2.

However, after April’s sizable increase, confidence among North American investors consolidated somewhat, and the North America ICI declined by 2.2 points to finish at 102.5 for the month.

The State Street Investor Confidence Index, which was developed by Harvard University professor Kenneth Froot and Paul O’Connell of State Street Associates, measures investor confidence or risk appetite quantitatively by analysing the actual buying and selling patterns of institutional investors.

According to the index’s standards, to a greater percentage allocation to equities corresponds a higher risk appetite or confidence.

The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors.

“Institutional investors continued to augment their allocations to risky assets this month, albeit at a slower pace than we observed in either the first quarter, or the last weeks of April,” commented Froot.

“We note that, while the returns on emerging markets equities have lagged substantially behind those on developed markets equities this year, institutional investors have allocated more towards emerging markets since the middle of April.”

According to Froot, this may reflect a view that the gradual slowdown in emerging markets growth rates is “priced in,” and that emerging markets equities are offering better value than their major-market counterparts after recent price moves.

“At a regional level, the uptick in the European ICI is a welcome development, as it represents a positive change of almost one standard deviation,” added O’Connell.


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