State Street Investor Confidence Index (ICI) increased by 0.5 points in May to settle at 119.5. Investors in both North America and Asia displayed lower risk appetite, with the North American ICI falling 6.4 points to 115.5 and the Asia ICI falling by 10.6 points to 104.4.
In Europe, by contrast, confidence improved and the ICI for that region rose 9.3 points to 111.2.
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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.
"Given the prospects for increased easing by the ECB, European institutions showed a more positive tone in May," said Jessica Donohue, senior managing director and head of research and advisory services, State Street Global Exchange. "However, the gains in Europe have been somewhat offset by valuation concerns in the US, which have tempered the level of confidence in North America."
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By GlobalData"Growing concerns over China’s property market and continued manufacturing contraction may have impacted Asian investor sentiment," added Froot. "It will be important to see how institutions invested in emerging markets respond as Fed tapering progresses and the prospect of rising short-term rates in the US comes to the front of investors’ minds."
