Investor confidence dips in August

Global investor confidence dipped in August after speculation that the US Federal Reserve will taper its program of quantitative easing (QE).

The State Street Global Investor Confidence Index (ICI) fell 2.6 points in August to 105.1 from a revised reading of 107.7 in July, led by a drop in the European ICI of 8.2 points to 97.1.

The Asian ICI declined 7.6 points to 93.0 due to concerns that any tapering of the Fed’s QE program would hit emerging markets’ stocks and currencies particularly hard.

The North American ICI dropped 1.5 points to 112.5 in August, from July’s revised level of 114.0. The drop is indicative of firmly held expectations that the Fed will slow QE, but the level is still well into positive territory, based on the view that US economic fundamentals are improving.

An ICI reading above 100 indicates an appetite for risk, while a reading below 100 indicates that investors are decreasing their long-term holdings of assets perceived as risky.

‘The consensus is certainly that monetary authorities in the US will shortly begin to cut back on the monetary stimulus that has been in place for some time now, but there is recognition that this will only occur in response to improved US fundamentals,’ says Kenneth Froot, the Harvard University professor who helped design the index, in a press release.

‘Certainly, the recently announced policy that short-term interest rates will be tied to the rate of unemployment lends support to this view,’ Froot adds.

The effect of expected QE tapering was more marked outside the US than inside, especially in countries with large current account imbalances, based on concern that tapering could spark sell-offs in those countries’ currencies, State Street says.