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Investor Confidence Index slips slightly in December from 99.4 to 99.3, says State Street

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Global investor confidence dipped slightly to 99.3 in December, down 0.1 points from November’s revised reading of 99.4, according to the latest figures for the State Street Investor Confidence Index.

Among North American institutional investors, confidence decreased 2.0 points to 96.4 from November’s revised reading of 98.4, and in Asia, risk appetite also declined, falling 1.0 points to 93.7 from November’s revised reading of 94.7. European institutional investors bucked the trend, as their confidence rose 0.6 points from November’s revised level of 101.6 to 102.2.

The State Street Investor Confidence Index was developed by Harvard University professor Kenneth Froot (pictured) and Paul O’Connell of State Street Associates. It measures investor confidence or risk appetite quantitatively by analysing 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 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.

“The small declines this month were offset by upward revisions to last month’s numbers. As a result, we would describe investors as being in a holding pattern,” says Froot. “The meeting of European policy makers on December 9th did not address the over-arching questions in the minds of global investors, and they are likely looking forward to the first quarter of 2012 for greater clarity on the prospects for risk allocations in their portfolios.”

“Looking regionally, European investors are more optimistic than their North American and Asian peers for the second consecutive month,” says O’Connell. “This is a turnabout from the first half of the year, when European investors showed the most pessimism. It does not necessarily mean that prospects for the European region itself have improved, but it does suggest that European institutions are more willing to allocate to equities both inside and outside Europe than they were earlier in the year.”

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