European investor confidence was up before Brexit

European investor confidence was up this month ahead of the UK referendum result, which has seen markets suffer across the globe.

According to State Street’s Investor Confidence Index (ICI), the European ICI was up by 3.5 points to 100.3. However, the information was gathered up to June 22 and does not account for the Brexit decision made two days later.

“The confidence of European investors rose in June, ahead of the UK’s EU referendum. This helps to explain why markets have moved so wildly following the vote to leave. Investors were not reducing risk sufficiently ahead of the vote,” said Michael Metcalfe, senior managing director and head of global macro strategy at State Street Global Markets.

Globally, the ICI was down by just 0.1 point from May’s reading of 106. According to State Street’s methodology, a reading of 100 is neutral, the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets.

The index measures investor confidence or risk appetite by analysing the actual buying and selling patterns of institutional investors. Therefore, readings of over 100 indicate greater investor confidence.

Ken Froot, one of the developers of the ICI, said that this month’s reading did not capture the market’s reaction to the “seismic” announcement that the UK will leave the EU.

“It will be interesting to watch where professionals now perceive value in next month’s index,” he added.

©2016 funds europe

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