State Street Global Exchange released the results of the State Street Investor Confidence Index® (ICI) for October 2014.
The Global ICI decreased to 115.1 in October, down 8.8 points from September’s revised reading of 123.9. Investors in Europe showed lower risk appetite, with the European ICI falling 24.3 points to 115.5. In North America, by contrast, the ICI rose 5.9 points to 108.5. The Asian ICI rose by 2.1 points to 99.5.
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.
“European investor confidence had crested in September at an all-time high, so it is perhaps not surprising to see it come down somewhat this month,” commented Froot. “The decline may be driven by deflationary fears in the region. Although the ECB has engaged in covered-bond purchases, German opposition to full-blown Quantitative Easing may have left investors wondering whether or not the European Central Bank can do enough to combat headwinds to growth.”
“The correction in global investor confidence occurred in spite of a rise in the US.” said Michael Metcalfe, senior vice president and head of global macro strategy, State Street Global Markets. “This highlights the importance of weakness outside of the US as the main causes of the recent turbulence in financial markets.”