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SSGM’s Global ICI Index rises in June by 11.9 points to 106.8

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State Street Global Markets’ Global Investor Confidence Index (ICI) rose to 106.8 in June, up 11.9 points from May’s revised reading of 94.9.

 
The increase was largely driven by an increase in risk appetite among North American investors, as evidenced by the 11.4 point increase in the North American ICI to 114.0 from May’s revised level of 102.6.
 
Confidence also increased among European and Asian institutions, with the European ICI up 4.7 points to 98.4 from a revised 93.7 in May and the Asian ICI index ticking up to 89.1 from May’s reading of 86.0. 
 
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.
 
“The robust increase in the top-line Global ICI number shows that institutional investors took somewhat contrarian positions during the month,” says Froot. “We witnessed selling of US equities, buying of European equities, and significant buying of Emerging Markets equities. These reallocations run counter to price movements over the period, though it should be noted that our data sample ends on 21 June and hence does not cover the most recent downturn in equity prices. Overall, our data suggest that institutional investors are content to ‘take the other side’ of these price moves.”
 
“With this month’s increases, both the Global ICI and the North American ICI are in ‘accumulate risk’ territory, above the neutral level of 100, and the European ICI is close to that level,” says O’Connell. “While the prospect of an end to quantitative easing in the US has caused a spike in bond yields and a sell-off in equities, institutional investors have viewed this as an opportunity to add equity risk at the expense of bond holdings. We will be watching the data closely to see if this is a one-off opportunistic trade, or a more durable valuation-based strategic trade.”

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