The State Street Global Investor Confidence Index (ICI) rose to 108.3 in December 2015, up 1.0 point from November’s revised reading of 107.3, driven by an increase in the European ICI from 96.2 to 103.7 along with the Asian ICI rising 4.6 points to 105.1.
By contrast, the North American ICI decreased by 5.9 points to 106.6.
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.
“US investors have been showing an appetite for risk for much of 2015, but have been increasingly risk averse into year-end as uncertainty about global growth, weak commodity prices and the beginning of the Fed tightening cycle have eroded confidence to take risk,” says Ken Froot.
“The knee jerk reaction from European equity and bond markets was to sell off together when the European Central Bank eased but failed to increase its asset purchases program in early December,” adds Michael Metcalfe, senior managing director and head of Global Macro Strategy, State Street Global Markets. “It appears European long-term investors were more forgiving as their allocation to risky assets went up over the course of the month.
