State Street Global Markets, the investment research and trading arm of State Street Corporation, released the results of the State Street Investor Confidence Index for February 2009.
Global Investor Confidence increased by 12.7 points to 72.9, from January’s revised level of 60.2. As with last month, the increase was driven by North American institutional investors, whose confidence climbed 13.0 points to 64.5. Elsewhere risk appetite was somewhat more subdued, as evidenced by a decline of 3.2 points in the European Index to 69.8, and a decline in the Asian Index of 2.7 points to 83.8.
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 analyzing 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.
“With two consecutive 12-point increases in Global Investor Confidence, there is evidence that institutional investors appear to have left behind the extreme gloom that characterized their outlook towards the end of 2008,” says Froot. “However, while institutional investors have been willing to add exposure across a number of the peripheral and emerging markets from which they had divested towards the end of last year, flows across developed markets remain somewhat tepid.”
“The recovery in the confidence of North American investors, while robust, still leaves the index some 15 points below the average reading of 80.2 that was recorded for the first nine months of 2008,” says O’Connell. “Measured by the same yardstick, European investors currently lag their 2008 average by 10 points, but Asian investors lag their average by just 1 point. Considerable uncertainty around policy actions in the major economies, particularly the US, will need to be resolved to bring stability to confidence at these levels.”
D.C.