Investor confidence up in September as risk appetite returns

RiskAfter a difficult month in August, investors have been increasing their exposure to equities, suggesting that confidence has returned to riskier asset classes.

The State Street Investor Confidence Index (ICI) rose by 7.2 points to 116.6 from August to September. The improvement in sentiment was driven by an increase in the North American ICI from 120.6 to 133.2. Confidence among Asian investors rose by 5.4 points to 97.8, while in Europe the ICI also increased to 95.7, up 2.2 points.

The index measures investor confidence or risk appetite by analysing the actual buying and selling patterns of institutional investors. 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.

The ICI was developed by Kenneth Froot and Paul O’Connell at State Street Associates, State Street Global Exchange’s research and advisory services business.

Froot says that in September, investors were preoccupied with the Federal Reserve’s decision to raise interest rates or not.

“In the current environment of elevated tail risk, indications that the Fed is embarking upon a more shallow rate hiking cycle should help both alleviate market volatility and stabilise global growth outlook, and this has been reflected in sentiment more broadly [last] month,” he adds.

Jessica Donohue, executive vice president and chief innovation officer at State Street Global Exchange says that the delayed rate hike has extended loose monetary policy, which in turn has eased concerns over emerging markets.

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