European investor sentiment leads drop, turning negative after four months in positive territory
Global investor sentiment fell sharply in October, hitting an all-time low, as the eurozone’s sovereign debt crisis dragged on, Chinese growth slowed and the US grew closer to the decisive moments of a presidential election and the so-called ‘fiscal cliff’ that economists fear could plunge the US back into recession, according to State Street Global Markets.
The Global State Street Investor Confidence Index dropped to 80.6 points in October, from 87.3 in September, bringing the index to the lowest level since its creation in 2003, State Street says. The previous low was 81.1 points, set in October 2008 amid the financial crisis of that year.
‘Institutional investors continue to display a pronounced, almost secular desire to reallocate away from equities and toward fixed income and cash securities, and this desire has accelerated through the recent market correction,’ says Harvard University’s Professor Kenneth Froot, who helped develop the index.
As of the end of October, the future of Greece in the eurozone was in question as parliament prepared to vote on a three-year austerity package as part of reforms negotiated with international lenders. The economic outlook in the US was also clouded by the so-called fiscal cliff – the series of spending cuts and cancellation of tax breaks that will take effect at the end of the year if politicians don’t negotiate an alternative immediately after the November elections.
Economists say it could plunge the country into a recession next year. Asia’s outlook also dimmed in October with further signs China’s economy is slowing.
State Street’s European Investor Confidence Index led the plunge, falling 10.3 points to 94.9. The European index fell into negative territory after remaining positive, or above 100 points, for the previous four months. A level of 100 points in the index, which measures risk appetite by tracking actual trades, indicates investors are neither increasing nor decreasing their allocations to risky assets. A level below 100 indicates they are decreasing their allocations to assets seen as carrying a greater risk.
The North American Investor Confidence Index dropped 2.7 points to 79 in October, giving the continent the lowest index level of the major regions. The North American Index has fallen from 90 points at the beginning of this year and from 90.5 points a year ago. The Asian Investor Confidence Index fell 2.9 points to 84.5, according to State Street.
‘In 2008, the last time global investor confidence was in this range, the regional pattern was somewhat different,’ says index co-developer Paul O’Connell of State Street Associates. ‘North American institutional investor confidence was about six points lower, but Asian investor confidence was 10 points higher. This shift is reflective of the changed investment outlook, with improved US prospects offset by slowing growth in the Asia region. The net effect is that institutional investors have little appetite for risky assets.’
