European investors buoyed in latest State Street Confidence Index

Investors in Europe have become more positive towards risky assets, according to findings of the latest monthly State Street Investor Confidence Index (ICI).

The European ICI gained 4 points from January’s revised reading of 91.2 to reach 95.2.

By contrast the global ICI was dragged down by falling confidence among North American investors, and a static outlook by Asian investors. The North American ICI fell 9.5 points to 80.5, its lowest reading in more than three years. The Asian ICI was barely changed, down 0.3 points from a revised January reading of 96.6 to end at 96.3.

The index measures investor confidence or risk appetite quantitatively by analyzing the actual buying and selling patterns of institutional investors in the form of trades. A level of 100 is neutral, indicating investors are neither increasing or decreasing their allocation to risky assets.

Kenneth Froot, Harvard University professor and co-developer of the ICI said: “This month, institutional investors in the aggregate continued the pattern established late in 2011 of reducing allocations to equities.”

“Given that equity returns have been positive over the last one and three months, it is clear that these institutions have been ‘liquidity providers’ in the market, comfortable with rebalancing their portfolios at these higher valuations. At the same time, we do note a pro-cyclical bias to the reallocation: institutions are keen to hang on to, or even increase, their holdings of pro-growth sectors such as industrial and consumer discretionary stocks, while cutting back on consumer staples, healthcare and telecom stocks.”

Paul O’Connell of State Street Associates and also a co-developer of the index, said: “The latest round of policy developments in Europe went some way towards lowering the risk of a catastrophic ‘tail event’ crisis, and this improved the mood of European investors. Asian investors held their outlook constant, though we did note that net purchases of Pacific ex-Japan equities by all global investors were relatively robust. It is among US investors that the tendency to sell into the recent market strength was most pronounced.”


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