State Street Global Markets have released the results of the State Street Investor Confidence Index for October 2007.
Global Investor Confidence fell by 6.1 points to a level of 82.6, from last month’s revised reading of 88.7. Sentiment in North America declined from 102.8 to 89.2. Asian investors were also feeling more cautious, resulting in a decline of 1.7 points in the Asian Confidence Index. Only in Europe did institutional risk appetite improve, rising from 82.9 to 83.6.
Developed through State Street Global Markets’ research partnership, State Street Associates, by Harvard University professor Ken Froot and State Street Associates Director Paul O’Connell, the State Street Investor Confidence Index measures investor confidence on a quantitative basis by analysing the actual buying and selling patterns of institutional investors.
The index is based on financial theory that assigns precise meaning to changes in investor risk appetite, or the willingness of investors to allocate their portfolios to equities. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.
“Following the see-saw behavior of late summer, which saw institutional investors providing liquidity to cash-strapped investors in August, before taking profit on that trade in State Street Corporation 2 September, this month’s confidence reading reflects a more dubious stance on the fundamentals. Uncertainty around the macroeconomic environment and earnings prospects has both increased the riskiness of assets, and decreased the appetite to hold them,” says Froot.
“Emblematic of this month’s decline in confidence was the pattern observed among North American institutional investors,” added O’Connell. “In this cohort, confidence fell to its lowest level since February 2006, and this was reflected in persistent selling of equities over the period, especially in recent days,” adds O’Connell.