State Street Global Exchange has released the results of the State Street Investor Confidence Index (ICI) for February 2014.
The Global ICI rose by 8.7 points in February to reach 123.0. The increase was primarily driven by North American institutional investors, with the North American ICI rising 12.3 points to 125.5, up from January’s revised level of 113.2.
Risk sentiment was more tepid elsewhere, with the European ICI falling slightly from January’s revised reading of 112.8 to settle at 110.6. Offsetting this was a small increase in confidence among Asian investors, with the Asian ICI rising 3.3 points to 106.6 from the January reading of 103.3.
The Investor Confidence Index was developed by Kenneth Froot and Paul O’Connell at State Street Associates, State Street Global Exchange’s research and advisory services business. 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.
Michael Metcalfe, senior vice president and head of multi-asset strategy, State Street Global Markets, said: "Weaker US economic data and troubles in emerging markets sparked a dramatic correction in global equities in late January and early February, but longer-term investors did not panic. Instead, they used the sell-off in risk assets as a buying opportunity and measured investor sentiment rose in all regions bar Europe."
O’Connell said: "So far this year we have seen institutions make meaningful additions to their equity holdings and this trend has remained intact despite questions about credit tightening in China, the pace of growth in the US and policy upheaval in Turkey, Argentina, Thailand and the Ukraine. Our data does reveal regional weakness, notably in lack-luster demand for European ex-UK equities, but overall suggests that institutions are adhering to their strategic plans, albeit with a slight defensive tilt to their sector allocation."