State Street’s Investor Confidence Index (ICI) rose by 0.7 points from June’s reading of 93.3 to reach 94.0.
Confidence among both North American and European investors ticked downwards, while sentiment among Asian investors was slightly improved. The North American ICI declined 0.6 points from June’s revised reading of 93.7 to settle at 93.1, while the European ICI fell 0.5 points from June’s revised reading of 102.2, reaching 101.7. The Asian ICI was up 0.8 points from June’s revised figure of 90.2 to finish at 91.
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.
“The message being sent by institutional investors this month is one of caution,” said Froot. “The pickup in equity buying that we noted last month proved short-lived, and flows had turned negative by the end of our July sample. It should be noted that the sample ends just before the latest round of policy pronouncements from European policymakers. As such, it remains to be seen whether these policy moves will have a meaningful impact on risk appetite.”
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 buying and selling patterns of institutional investors.