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Michael Metcalfe, State Street

Investor confidence down by 2.4 points in July

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The State Street Global Investor Confidence Index decreased to 84.9 in July, down 2.4 points from June’s revised reading of 87.3, with investors from across all regions expressing a waning appetite for risk. 

The North American ICI fell from 81.6 to 80.6, the European ICI from 103.3 to 99.3, and the Asian ICI from 95.9 to 91.9.

The Investor Confidence Index was developed by Kenneth Froot and Paul O’Connell at State Street Associates, State Street Global Markets’ 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.

“The minor stumble in investor confidence is notable not just because it runs counter to the new highs made in the prices of some risky assets, but because confidence fell in all three regions, albeit by different amounts,” says Michael Metcalfe (pictured), senior managing director and head of Global Macro Strategy, State Street Global Markets. “Investors may not be bound by the same supply chain linkages that global manufacturing is, but the risk of contagion remains. The fact that confidence fell the furthest in the APAC region is perhaps testimony to questions of how much stimulus will be forthcoming from policymakers in the region.”

“Last month’s improvement in investor confidence turned out to be short-lived. In July, investors have exhibited renewed risk aversion, and while US equities reached record highs, global equities did not participate in the excitement,” says Kenneth Froot. “In a bid to alleviate the drag on global growth and earnings, developed-market central banks are dovish, and the Federal Reserve is expected to cut rates. And now, in spite of  trade talks between the US and China, continued uncertainty over supply chain disruption and Brexit appears to persist.”

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