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State Street Ken Froot

Investor Confidence falls in August by 4.5 points to 108.7

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The State Street Investor Confidence Index (ICI) for August 2015 decreased to 108.7, down 4.5 points from July’s revised reading of 113.2. 

Confidence among North American investors decreased with the North American ICI falling 0.8 points to 119.1, down from July’s revised reading of 119.9. Meanwhile, the Asia ICI rose by 3.5 points to 93.0 while the European ICI fell 6.8 points to 93.5.

The Investor Confidence Index was developed by Kenneth Froot (pictured) 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 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 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.

"In the wake of the devaluation of the renminbi and the continued turmoil in commodities, investors have exhibited an increasingly cautious tone in August with the Global ICI falling 4.5 points,” says Froot. “How this effects the Fed is yet to be seen; certainly the deteriorating overhang of global growth and the pull back in emerging markets makes a decision to raise rates increasingly precarious.”

“The cut off to calculate this month’s investor confidence index reading was August 19th, so we have only captured some reaction to China’s decision to change its FX regime,” adds Michael Metcalfe, senior managing director and head of Global Macro Strategy, State Street Global Markets. “The fall in this month’s index that we can see so far was driven by investors based in Europe, where confidence has fallen below the key 100 threshold for the first time since August 2013.”

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