Global investor confidence falls

After a brief recovery in May, global investor confidence fell back below 100 to settle at 99.2, according to the results of the State Street Investor Confidence Index for June 2011. This represents a decline of 5.1 points from May’s revised reading of 104.3

The decline was most pronounced among North American investors, whose confidence fell 5.8 points to 100.4 from May’s revised level of 106.2. Asian investors also reduced their risk appetite, with investor confidence falling 3.7 points to 93.2 from a revised May reading of 96.9.

“This month saw the release of a number of indicators that offered further confirmation that global growth has slowed,” commented Kenneth Froot, a Harvard University professor who helped develop the State Street Investor Confidence Index. “In the U.S., policy-makers pointed to Japanese supply disruption and elevated natural resource prices as potential culprits, but beyond these concerns there is the prospect of further slowdown in China to consider as well as the difficulties surrounding Greek sovereign debt. Institutional investors have responded to these worries and have suspended for now the accumulation of risky assets that they began in May.”

European investor confidence, though, bucked the trend by rising 8.5 points from May’s revised level of 79.4, to reach 87.9.

“Looking regionally, we see a continuation of the improvement in confidence among European investors that began in March,” said State Street Associates’ Paul O’Connell, who developed the index with Froot. “Cumulatively, the European Investor Confidence Index is up 21 points over the quarter, albeit a substantial gain from extremely low levels. A level of 87.9 still signifies risk aversion and the sales of equity positions persist, but European institutions have tempered the pace of such sales recently, perhaps in recognition of the fact that recent price moves have created more attractive valuations in certain sectors.”

The State Street Investor Confidence Index measures investor confidence or risk appetite quantitatively by analyzing 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.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.