State Street Global Exchange has released the results of the State Street Investor Confidence Index (ICI) for December 2013.
The Global ICI rose to 95.9 in December, up 4.7 points from November’s revised reading of 91.2. The increase was the result of a mild increase from 89.2 to 90.2 in US sentiment combined with a strong increase in European sentiment, which rose to 107.1 from November’s revised reading of 101.0.
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Sentiment in Asia fell slightly over the month to 98.5 from 99.3, fueled by increased growth concerns in the region.
The Investor Confidence Index was developed by State Street Associates, State Street Global Exchange’s research and advisory services business, and Harvard University professor Kenneth Froot. It 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 long-term 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.
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By GlobalDataFroot said: "Continued improvements in US fundamental economic data, especially around jobs, seem to have finally taken precedence over Fed tapering for investors. It hasn’t been uncommon to see good fundamental news hurting risk assets as investors worry about the future of quantitative easing and the initiation of tapering. The Fed has finally worn investors down to a more jaded interpretation of tapering under which the economy no longer needs such a strong form of life support. Under this interpretation, investors embrace higher interest rates as the inevitable but bearable downside of solid growth rather than as evidence that market liquidity will become constrained and that growth will fall."
Michael Metcalfe, head of cross strategy research at State Street Global Markets, said: "However, a disjuncture remains. Emerging markets investors are still concerned that tapering will strangle world growth instead of seeing higher rates as a result of stronger growth worldwide. We can see this in the way that risk assets in emerging economies continue to struggle and also in this month’s mild decline in Asian investor confidence. Even though China has plenty of financial issues still to work through, I would look forward to a global New Year’s resolution that this disjuncture will ease over the coming months."
