Increasing confidence in North America buoys world outlook and spurs drive for risk assets
Global investor confidence surged in June to the highest level since March 2010 amid increasing signs of a quickening economic recovery in the US, leading North American investors to seek higher risk assets, according to the State Street Investor Confidence Index (ICI).
The Global ICI jumped 11.9 points in June to 106.8 from May’s revised level of 94.9, State Street says in a press release. The North American ICI rose 11.4 points to 114 from May’s revised reading of 102.6, leaving the continent as the only region in the world with a positive reading, or a level above 100 points.
The North American reading, the highest since the regional index was started at the beginning of last year, is responsible for bringing the Global ICI into positive territory as well. The global measure had been below 100 points in every monthly reading since July 2011, when it was at 102.5. The June reading is the highest since the index reached 107.4 in March 2010.
The European ICI increased 4.7 points to 98.4 from May’s revised level of 93.7, helped by the perception of improvement in the European sovereign debt crisis. Investor confidence in Asia, where Japan is undertaking its own monetary easing plan and China faces challenges to its economic growth projections, increased at the slowest pace, rising 3.1 points to 89.1 from 86 in May.
‘With this month’s increases, both the Global ICI and the North American ICI are in ‘accumulate risk’ territory, above the neutral level of 100, and the European ICI is close to that level,’ says Paul O’Connell of State Street Associates in a press release. ‘While the prospect of an end to quantitative easing in the US has caused a spike in bond yields and a sell-off in equities, institutional investors have viewed this as an opportunity to add equity risk at the expense of bond holdings.’
The State Street data measures buying patterns of institutional investors until June 21, which means most of the data comes from before June 19, when US Federal Reserve Chairman Ben Bernanke announced the Fed was aiming to slow down its program of quantitative easing. The announcement spurred losses worldwide in stock, bond and commodities markets.
In June ‘we witnessed selling of US equities, buying of European equities and significant buying of emerging markets equities,’ says Harvard University Professor Kenneth Froot, who helped develop the State Street index. ‘These reallocations run counter to price movements over the period, though it should be noted that our data sample ends on June 21 and hence does not cover the most recent downturn in equity prices. Overall, our data suggests institutional investors are content to ‘take the other side’ of these price moves.’
