Investor Confidence Index rises slightly in December
27 December 2012
By Asia Asset Management
State Street Global Markets, the investment research and trading arm of State Street Corporation, has released the results of the State Street Investor Confidence Index (ICI) for December 2012.
The Global ICI rose 0.4 points from November’s revised reading of 80.5 to settle at 80.9. Among North American institutional investors, confidence rebounded from its record low of 72.4 in November, rising 5.4 points to reach 77.8. Asian institutional investors were also optimistic, as evidenced by a 3.8 point increase in the Asian ICI to 89.1 In contrast, risk appetite among European institutional investors declined, and the European ICI fell 4.8 points to 95.2.
The State Street Investor Confidence Index was developed by Harvard University Professor Kenneth Froot and Paul O’Connell of State Street Associates. It measures investor confidence or risk appetite quantitatively by analysing the actual buying and selling patterns of institutional investors. The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher risk appetite or confidence. A reading of 100 is neutral; it is the level at which investors are neither increasing nor decreasing their 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.
“As has been true for some months now, global institutional investor confidence remains weak as institutions continue to shy away from equities,” commented Prof. Froot. “In the past year institutions have bought assets directly linked to a reduction in European tail risks, such as peripheral bonds and European banks. However, there is little evidence that institutions are interested in rebuilding core equity allocations in a broad-brush manner to previous levels.”
“The Global ICI, and all three of the regional ICI measures, finished well down on the year,” added Mr. O’Connell. “North American investors displayed the most pessimism, both in the closing level (77.8) and the yearly change (-12.1) of their index. With global dividend yields around 2.8%, and increasing talk of nominal GDP targeting among policy makers, we will be keen to observe whether there is a turnaround in equity flows in the New Year.”
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