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State Street Ken Froot

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Investor confidence falls by 5.7 points in April

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The State Street Global Investor Confidence Index (ICI) for April 2016 decreased to 109.1, down 5.7 points from March’s revised reading of 114.8. The decline in sentiment was driven by a decrease in the North American ICI from 123.7 to 115. 

The Asian ICI decreased by 4.2 points to 107.8 while the European ICI fell the least, from 95.8 to 95.3.

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.

“Global sentiment fell moderately in April as investors contemplated stretched valuations following the recent rebound in equities and commodities,” says Ken Froot (pictured). “Disappointing corporate guidance has been counterbalanced by increased easing expectations out of the European Central Bank and Bank of Japan. Absent further central bank action, investors will look to improving fundamentals to sustain a rally going forward.”

“We observed decreases in sentiment in each of our three regions, the most modest of which occurred in Europe where investors were already more pessimistic than elsewhere,” adds Michael Metcalfe, senior managing director and head of Global Macro Strategy, State Street Global Markets. “The implication is that the aggressive easing by the European central bank in March was sufficient to stabilize but not sufficient enough to boost sentiment in the region.”
 

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