The global ICI decreased to 93.8, down 0.3 points from December’s revised reading of 94.1, the State Street Investor Confidence Index (ICI) for January 2017 has revealed.
The decline in sentiment was driven by the 7.0 point decrease in the European ICI to 92.9 along with the 0.4 point decline in the Asian ICI to 108.1. By contrast, the North American ICI rose 2.0 points from 87.6 to 89.6.
“Stretched valuations and geopolitical risk did not support global sentiment at the start of 2017,” commented Ken Froot, developer of the Investor Confidence Index. “While financial markets crave political stability, political change is disruptive. With the new US Administration taking office mid-month, worries about trade policies and a stronger dollar have taken center stage in 2017.”
“It is noteworthy that after a more constructive vote of confidence by European investors in December, sentiment has moderated somewhat as the New Year started,” said Rajeev Bhargava, managing director and head of Investor Behavior Research at State Street Associates . “Concerns surrounding the impending French and Dutch elections as well as a hard Brexit may have fueled this cautious tone.”
The Investor Confidence Index 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.