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Ken Froot

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Investor confidence down by 5.7 points in September

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The State Street Global Investor Confidence Index decreased to 88.3 in September, down 5.7 points from August’s revised reading of 94.0. Confidence among North American investors further declined, with the North American ICI decreasing from 92.0 to 84.5.

The Asian ICI also decreased by 2.5 points to 100.0. Meanwhile, the European ICI rose by 1.0 points to 101.0.
 
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.
 
“Institutional investor scepticism was particularly acute in North America, where elevated stock valuations and rising concerns about a slowdown in corporate earnings growth increased risk aversion. Furthermore, the escalation of the trade dispute between the US and China seems to have led to a decline in the North American ICI to the levels not seen since 2012,” says Froot.
 
“While US equity markets continue to break records, helping measures of business and consumer confidence through, or to, cyclical highs, institutional investors are becoming increasingly cautious,” says Michael Metcalfe, senior managing director and head of Global Macro Strategy, State Street Global Markets. “Institutional investors have reduced their holdings of risky assets for two months in a row, and taken our investor confidence index to its lowest level in more than five-years. The implication would appear to be that investors think, for the moment at least, all the good news is in the price.”

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