Investors increasingly accept Fed tapering, State Street says
The outlook of investors around the world improved in December on a wave of renewed optimism from Europe.
The Global Investor Confidence Index (ICI) increased 4.7 points in December to 95.9 from November’s revised reading of 91.2 points, according to State Street Global Exchange. December marked the index’s first increase after four straight monthly drops.
The rise was spurred by a surge of optimism from Europe, which pushed the European ICI up to 107.1 points from 101 points, moving it firmly into positive territory, or above the 100-point threshold that indicates a degree of investor optimism.
The ICI for North America gained 1 point to 90.2 from a revised November reading of 89.2. The Asian ICI fell to 98.5 from 99.3 points on increased concerns over economic growth in the region.
The increases in Europe and North America both stemmed from rising optimism over the continents’ economic recoveries and investors’ growing confidence in the ability of the regions to handle a tapering of the US Federal Reserve’s program of quantitative easing, State Street says. On December 18, the Fed announced it would scale back its monthly bond-buying to $75 bn from $85 bn a month.
‘Continued improvements in US fundamental economic data, especially around jobs, seem to have finally taken precedence over Fed tapering for investors,’ Kenneth Froot, who developed the State Street index, says in a press release. ‘It hasn’t been uncommon to see good fundamental news hurting risk assets as investors worry about the future of quantitative easing and the initiation of tapering. The Fed has finally worn investors down to a more jaded interpretation of tapering under which the economy no longer needs such a strong form of life support.’
Emerging markets, however, still fear the effect of the Fed tapering, which could channel investment away from assets seen as carrying a greater degree of risk, says Michael Metcalfe, head of cross strategy research at State Street Global Markets.
‘Emerging markets investors are still concerned that tapering will strangle world growth instead of seeing higher rates as a result of stronger growth worldwide,’ he says. ‘We can see this in the way that risk assets in emerging economies continue to struggle and also in this month’s mild decline in Asian investor confidence.’
