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Investor confidence down in March, says State Street

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The State Street Investor Confidence Index (ICI) fell 3.4 points for March 2013 to finish at 88.0, down from February’s (revised) reading of 91.4.

 
The decrease was driven mostly by North American institutions, whose confidence decreased 4.2 points from February’s (revised) level of 99.7 to settle at 95.5.
 
The change in European investors’ sentiment, while also negative, was less pronounced, with the European ICI declining just 0.4 points to 91.7 from February’s revised reading of 92.1. Risk appetite among Asian institutional investors increased slightly, rising 1.8 points from 85.5 to finish the month at 87.3.
 
The State Street Investor Confidence Index was developed by Harvard University professor Kenneth Froot and Paul O’Connell of State Street Associates. 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.
 
“Investors have had to contend with three setbacks emanating from Europe over the past month: the Italian election result on 25 February, President Draghi’s comments on 7 March, and the announcement of Cypriot bailout conditions on 15 March,” says Froot. “Institutional investors continued to accumulate equities up until 7 March, but thereafter adopted a more cautious tone. It remains to be seen whether this will mark a consolidation of positioning in advance of a further round of risk-taking, or a more meaningful pause in risk appetite.”
 
“Investors’ confidence is well-illustrated by the data on emerging markets equity allocations,” says O’Connell. “After a virtually unbroken stream of ‘buying’ days this year, institutional investors have held their allocations to emerging markets constant in the most recent weeks. European and Asian investors remain somewhat less optimistic than their North American counterparts, and across all groups, the heavy selling of fixed income securities observed in February has tapered towards zero.”
 

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