State Street reveals fall in investment confidence index

State Street Global Markets, the investment research and trading arm of State Street, has released the results of the State Street Investor Confidence Index (ICI) for September, revealing the Global ICI fell from August’s 91.0 to 86.9.

North American investor confidence continued to decline this month, falling 3.2 points from August’s reading of 84.3 to end at 81.1.

Asian investors followed suit, with the Asian ICI declining 5.6 points to 87.6.

Only European investors were an exception and an increase in risk appetite led the European ICI up by 4.0 points from 101.0 in August to 105.0 in September.

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 analyzing 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 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.

“This month’s decline in global investor confidence is the result of diminished risk appetite among both North American and Asian investors,” commented Froot.

“While diminished growth expectations for Asia account for some of the reticence in that region, the third consecutive decline in confidence among North American investors is more puzzling, especially given recent announcements by monetary policy makers on both sides of the Atlantic.

"It is clear that in their actual portfolios, institutional investors continue to exhibit caution given the global growth backdrop.”

“One point worth noting is that we observed a pronounced improvement in tone from the first week of September onwards.” added O’Connell.

“Nonetheless, the reallocations away from risky assets early in the month were large enough to outweigh the later stabilization. As with last month, emerging markets continue to attract some positive inflows.”