European investor confidence nudges up

European investor confidence increased slightly in May, according to the Investor Confidence Index (ICI) of State Street Global Exchange (SSGE).

European ICI rose by 1.4 points from 95.4 in April to 96.8 in May, while Asian ICI increased by 4.1 points to 112.1, the SSGE index shows.

However, the global ICI decreased to 106.6, down 2.0 points from April’s revised reading of 108.6. The decline in sentiment was driven by a decrease in the North American ICI from 114 to 109.

The Investor Confidence Index, developed by Kenneth Froot and Paul O’Connell, 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 regional breakdown of our investor confidence index this month reveals an interesting story, with confidence rising in both Asia and Europe,” Froot said.

“While strong policy support in China fuels the country’s economic growth, fears of Chinese Yuan devaluation–along with elevated debt levels–may give investors pause. Risk aversion remains central in Europe as investors doubt the efficacy of policy makers and anxiously anticipate the outcome of the UK referendum.”

“In May, we saw a continued decline in global and North American investor sentiment driven by weak earnings in the United States, renewed Fed hawkishness and uncertainty associated with the upcoming US presidential elections”, said Jessica Donohue, SSGE’s executive vice president and chief innovation officer.

 

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