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State Street Ken Froot

Investor confidence down 1.6 points in February

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The State Street Global Investor Confidence Index (ICI) measured 92.9 in February, down 1.6 points from January’s revised reading of 94.5.

The decline in sentiment was driven by the 9.3 point decrease in the European ICI to 83.3, along with the 4.0 point decline in the Asian ICI to 104.0.
 
By contrast, the North American ICI rose 3.8 points from 90.9 to 94.7.
 
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 analysing the actual buying and selling patterns of institutional investors.
 
“In February, global institutional investors continued to shy away from risk despite the ongoing uptrend in risky asset prices,” says Froot (pictured). “Interestingly, we note a striking disparity in risk tolerance between North American investors and other regions. It remains unclear whether this disparity stems from the relative dynamism of the US economy in the developed world, or from unrealistic Trumpian optimism on earnings and growth instead.”
 
“Given the improving economic outlook across most regions, we would assume that the sharply weaker confidence captured by our regional index in Europe was driven by growing political concerns ahead of the upcoming elections in The Netherlands, France and Germany,” adds Michael Metcalfe, senior managing director and head of global macro strategy, State Street Global Markets.  
 
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.
 

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