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State Street Ken Froot

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Global Investor Confidence down by 0.1 points in June ahead of Brexit vote

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The State Street Investor Global Investor Confidence Index (ICI) was down by just 0.1 points to 105.9 in June, but the index was measured prior to the UK’s EU referendum.

The North American ICI declined further in June by 2.0 points to 105.9, while the Asian ICI rose from 112.3 to 113.4 and the European ICI increased by 3.5 points to 100.3, ahead of the EU referendum.

“The confidence of European investors rose in June, ahead of the UK’s EU referendum. This helps to explain why markets have moved so wildly following the vote to Leave. Investors’ were not reducing risk sufficiently ahead of the vote,” says Michael Metcalfe, senior managing director and head of Global Macro Strategy, State Street Global Markets.

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 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. The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors.

“June was all about Brexit or Bremain as investors anxiously awaited the outcome of the EU referendum,” says Froot. “This month’s Investor Confidence Index reading did not capture the market’s reaction to the seismic announcement that the UK will leave the European Union. It will be interesting to watch where professionals now perceive value in next month’s index.”

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