Globally, confidence levels fell from 104.2 in December to 100.9 in January, with declines evident across all regions. The risk appetite of North American institutional investors fell to 99.5, a 3.6 point decline from the December level of 103.1, State Street reports. Similarly in Europe, institutional investor confidence decreased 3.9 points to 93.5 from December’s revised level of 97.4.
The decline in confidence among Asian investors was somewhat more pronounced, resulting in a decline of 5.4 points in the confidence measure in that region, from 102.9 to 97.5.
Developed by Harvard University professor Kenneth Froot and Paul O’Connell of State Street Associates, the State Street Investor Confidence Index measures investor confidence on a quantitative basis 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 is 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.
“Institutional investors reverted to a more cautious stance this month, balancing improved prospects for global growth against what has been a relatively rapid run-up in prices,” said Froot, in the press release. “With world equity prices up 6.9% over three months and 20% over six months, valuations have moved up a reasonable amount, prompting some in the institutional community to adopt a ‘wait-and-see’ stance. It remains to be seen whether improved macroeconomic data from the US and policy actions with respect to peripheral European debt will prompt an early reassessment of this stance.”