Global investor confidence rose 8.0 points in December according to figures released by State Street Global Markets. The State Street Global Investor Confidence Index rose from 94.4 to 104.4 during December, while in North America confidence rose 7.7 points to 103.1.
Investor confidence was not as positive among European investors however, with the index decreasing 10.8 points to 99 from November’s revised level of 109.8. In Asia, like North America, institutional investors were equally optimistic and confidence in that region increased by 7.4 points from a revised November level of 95.5 to 102.9 in December.
Developed by Harvard University professor Kenneth Froot and Paul O’Connell of State Street Associates, the State Street Investor Confidence Indexmeasures investor confidence on a quantitative basis by analyzing 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 is 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.
“This month the confidence of institutional investors has continued its late-year improvement. Clearly, the scenario for moderated world growth with recovery in the US has increasingly gained traction,” says Froot. “Confidence in both North America and Asia has now edged above the neutral level of 100, after a relatively weak mid-2010.”
O’Connell adds: “The strong decline of European investors’ confidence shows that the regions’ investors remain quite jittery in the face of intra-European turmoil. We went quickly from a regime of concern around the euro and the liquidity of some of the smaller countries’ debts, to a regime where those concerns were ignored. And now we have come full circle: European investors are back again worrying that high sovereign indebtedness may prove destabilising for the region.”
