The State Street Global Investor Confidence Index increased to 79.5 in May, up 6.6 points from April’s revised reading of 72.9.
Confidence among North American and European investors improved, with the North American ICI rising from 71.3 to 76.7, and the European ICI rising from 86.6 to 92.5. By contrast, the Asia ICI dropped by 4.2 points to 88.4.
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. 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.
“Investors that embraced ‘sell in May and go away’ rested easier this month, as risk assets are experiencing their weakest performance of the year. Driven by trade and growth concerns, global equities are set to close broadly in the red for the first time this year. Yields have all but collapsed, with developed market sovereign interest rates falling to their lowest levels in years,” says, Marvin Loh, senior Global Macro Strategist, State Street Global Markets. “The overall hesitancy that we have seen from investors all year, reflects many of the concerns that emerged this month.”
“Trade war and Brexit-related uncertainty dominated this month’s headlines. Institutional investors have been wary, and with potential supply-chain disruptions and concerns about rising protectionism it is understandable that sentiment remains anchored in the risk-averse territory,” says Froot. “However, while the low level of the index points to risk-off behaviour over the last few months, the solid uptick this month indicates some investors may be moving back in to buy the dip.”