State Street’s investor confidence index rose to 89.0 in December – up but not enough to take it back to where it started. In fact, institutional investor sentiment ended the year 18% below the level it began it.
Institutional investors were not alone in their gloom. US business and consumer confidence indices fell 8% and 4% respectively. State Street analysts say that, given the near 70% rise in oil prices seen over the first 10-months of 2004 and the tightening of monetary policy, the weakening in sentiment seen this year is understandable.
They add, however, that there are reasons to be optimistic in 2005. The investor confidence index rose 3.5 points in the month of December; the second biggest monthly rise of the year. Having fallen sharply in the first six-months of the year, when oil prices first soared past US$50 per barrel, investor sentiment has stabilised in the second half of 2004 – an indication that investors have been able to discount the impact of both higher oil prices and the gradual tightening of monetary policy by the Federal Reserve and other global central banks.
“Of course this is not to say that 2005 will be without shocks, but the fact that institutional investors are ending the year allocating capital to the leveraged and risky areas of the global economy sends a positive signal about the outlook for next year,” conclude the State Street analysts.