Investor Confidence Index Rises in February

Location: Boston
Author: Steve Maguire
Date: Wednesday, February 20, 2008
 

Global Investor Confidence rose by 3.5 points from a revised January level of 69.5 to reach 73.0. Amongst North American investors, confidence rose 6.0 points from 72.2 to 78.2, but elsewhere, risk appetite was more muted, with European investor confidence falling from 85.8 to 83.7, and Asian investor confidence treading water barely rising from 85.4 to 85.7.

Developed through State Street Global Markets’ research partnership, State Street Associates, by Harvard University professor Ken Froot and State Street Associates Director Paul O’Connell, the State Street Investor Confidence Indexmeasures investor confidence on a quantitative basis by analyzing the actual buying and selling patterns of institutional investors. The index is based on financial theory that assigns precise meaning to changes in investor risk appetite, or the willingness of investors to allocate their portfolios to equities. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.

“This month saw a continuation of the modest improvement in Global Investor confidence that we witnessed in January,” commented Froot. “The small increase of 3.5 points takes place against the backdrop of a decline in market volatility from the very high levels witnessed earlier this winter, and reflects an understanding that, while many risks remain, the extreme risk-aversion displayed by institutions in late 2007 was perhaps overdone.”

“Looking across the data, we continue to see a fair degree of restraint amongst institutional investors, but this is balanced against a willingness to take on select risks,” added O’Connell. “Country and sector allocations retain a defensive posture, but recent flows into market segments such as Latin America and global financials indicate a somewhat improved risk appetitive.”

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