The State Street Global Investor Confidence Index (ICI) increased to 102.5 in May, up 5.1 points from April’s revised reading of 97.4.
The improvement in sentiment was driven by an increase in the North American ICI from 95.1 to 104.1.
The European ICI rose marginally from 96.2 to 96.9. In contrast, the Asian ICI continued to decrease from 104.6 to 101.1 this month.
The Investor Confidence Index was developed by Kenneth Froot (pictured) 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 analysing 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.
“After 10 consecutive months of readings below 100, Global investor confidence is finally picking up steam,” says Rajeev Bhargava, managing director and head of Investor Behaviour Research, State Street Associates. “Markets continue to anticipate a very gradual course for the Federal Reserve rate hikes, and with hopes for increased infrastructure spending and tax reforms, the North American ICI readings are resonating with the uptick in risk appetite.”
“Looking regionally, ICI numbers in Europe are below the neutral 100-level mark, as investors take a pause to reflect on elevated valuations in the region following the strong run year-to-date,” says Froot. “In contrast, Asian ICI has remained in a risk-on environment, perhaps reflecting the superior earnings growth in the region, as well as the falling risk premium in China.”