Investor confidence drops by 8.3 points in August

The Global ICI decreased to 89.7, down 8.3 points from July’s revised reading of 98, the State Street Investor Confidence Index (ICI) for August 2016 has revealed.

The decline in sentiment was driven by a decrease in the North American ICI from 99.8 to 89.5 and the European ICI from 92.4 to 86.8, along with the Asian ICI falling 2 points to 106.1.

The Investor Confidence Index was developed by Kenneth Froot and Paul O’Connell at State Street Associates, State Street Global Exchange’s research and advisory services business. 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.

“An eventful summer along with a poorer than expected earnings season clearly took the wind out of US institutional investors’ sails, pushing the US ICI deeper into the red,” said Froot.

“As the August ICI reading was taken before Janet Yellen’s speech at Jackson Hole, it remains to be seen whether her growing conviction on the case for a rate hike will mark a further round of risk aversion,” he said.

“The recent ‘melt-up’ in risky asset valuations does not appear to be endorsed by institutional investors,” added Timothy Graf, head of Macro Strategy, EMEA, State Street Global Markets. “The exception to this would be the resilient sentiment we see in Asia, perhaps a reflection of receding fears of a hard landing in China.”

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