State Street Global Exchange has revealed that the State Street Investor Confidence Index (ICI) fell to 105.1 in August, down 2.6 points from July’s revised reading of 107.7.
Although all regions saw a decrease in confidence, the fall was driven mainly by European and Asian investors. European confidence fell by 8.2 points to 97.1 while Asian confidence fell by 7.6 points to 93.0. North American investors also became somewhat more conservative, reporting a decline of 1.5 points to 112.5 from July’s revised reading of 114.0.
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The State Street Investor Confidence Index was developed by 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 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.
"Notwithstanding the turbulence in markets witnessed this month, especially in some emerging markets, institutional investors have broadly maintained their stance on risk, with only a modest pull-back seen in the Global Index," commented Froot. "The consensus is certainly that monetary authorities in the US will shortly begin to cut back on the monetary stimulus that has been in place for some time now, but there is recognition that this will only occur in response to improved US fundamentals. Certainly, the recently-announced policy that short-term interest rates will be tied to the rate of unemployment lends support to this view."
"Outside of North America, we observe some renewed caution, especially in Asia," added O’Connell. "The pressure exerted on the currencies of large current-account deficit countries — notably Brazil and India — has certainly put a dent in confidence. We do note, however, that while investors have been quick to sell emerging markets bonds, there is no evidence yet that their appetite for emerging markets equities is waning, and indeed a portion of the cash released by fixed income sales has been recycled into equities. We also note that flows to countries less exposed on the current account deficit side, such as China and South Korea, have been relatively strong."
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