The State Street Global Investor Confidence Index (ICI) rose for a second consecutive month in January, increasing by 5.4 points from December’s revised reading of 81.4 to finish at 86.8.
The increase was driven by North American institutions, whose confidence rose 7.8 points from December’s revised level of 78.5 to reach 86.3.
Institutional investors in Asia also felt more optimistic, and this pushed the Asian ICI up from 87.1 in December to 91.0 in January, an increase of 3.9 points. In contrast, risk appetite among European institutional investors extended its decline, falling 4.5 points from a revised reading of 94.1 in December to settle at 89.6.
The State Street Investor Confidence Index was developed by Harvard University professor Kenneth Froot 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.
“2013 has opened with something of a turnaround in demand for global equities by institutional investors,” says Froot. “This comes on the heels of a two-and-a-half year period of persistent ‘de-risking’ by these institutions. We will be watching the data closely to see if this is a short-term deviation from trend, as we saw in mid-2012, or whether it signals a more concerted effort to rebuild core equity positions.”
“In recent months we have seen the disparities in confidence that prevailed across regions for much of 2011 and 2012 dissipate,” says O’Connell. “There is now more global consensus on the appropriate stance to take towards risky assets. It remains the case that all three regional indices are below the long-term neutral level of 100, but our underlying data reveal consistent recent buying of equities in the US, Japan, Europe (excluding the UK) and emerging markets.”