The Global State Street Investor Confidence Index decreased to 104.4 in September, down 2.4 points from August’s revised reading of 106.8.
The decline in sentiment was driven by a 6.3 point drop in the North American ICI to 105.6. By contrast, the European ICI rose by 4.7 points to 93.7 along with the 3.7 increase in the Asian ICI to 102.8.
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. The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors.
“The regional breakdown of our Investor Confidence Index this month reveals rather diverging paths,” says Kenneth Froot. “Confidence has strengthened in Europe and Asia on the back of optimistic economic conditions. However, it has weakened in North America with renewed geopolitical concerns and the FOMC’s pivotal decision to gradually trim its USD4.5 trillion portfolio.”
“The risk appetite narrative of recent months has been revolving around monetary policy rhetoric from major central banks,” says Rajeev Bhargava, managing director and head of Investor Behavior Research at State Street Associates. “While global equity markets appeared to be unnerved by the Fed’s announcements of balance-sheet reductions, overall investor sentiment has declined.”