Confidence among investors in Asia and Europe declines, State Street index says
Global investor confidence rose in April as increasing evidence of economic recovery in the US prompted a surge in investor optimism in North America, more than outweighing drops in confidence in Asia and Europe, according to State Street.
The State Street Global Investor Confidence Index (ICI) rose 5.5 points in April to 93.6 from a revised level of 88.1 in March. The North American ICI gained 10.2 points to reach a two-year high of 105.8 from a revised March reading of 95.6. The ICI for Europe declined 3.9 points to 87.8 and the Asian ICI fell 2.1 points to 85.2.
Signs of a strengthening housing market, the continuation of the quantitative easing program of the US Federal Reserve, gains in household wealth and other macroeconomic data helped bolster confidence in the US economy in April. By contrast, signs of slowing growth in China affected Asian economic expectations and continued turmoil in Europe’s sovereign debt crisis and disagreement over macro policy continued to darken that continent’s outlook.
Harvard University’s Professor Kenneth Froot, who helped develop the State Street index, says the April results show investors are overcoming earlier skepticism concerning the direction of the global economy overall.
‘As we commented last month, March saw a more cautious tone among institutional investors, and this led them to hold constant or curtail their equity positions,’ Froot says in a news release. ‘The evidence this month suggests this caution was short-lived. We observed strong buying of equities globally, especially of Japanese and European equities, and even emerging markets returned to favor, though they still lag behind developed markets in terms of flows.’
The State Street indices measure investor confidence, or risk appetite, by analyzing buying and selling patterns of institutional investors. A reading of 100 is neutral, while below 100 indicates a reduced appetite for risk.
State Street’s Paul O’Connell says net allocations to equities in April were led by North American investors, who made ‘significant’ new investments starting after April 9. But he adds that the investment has continued to favor more defensive stocks, as investors may remain uncertain about a global economic recovery.
‘The North American ICI is now at its strongest level since May 2011,’ O’Connell says. ‘We would note that, at a sectoral level, flows favor defensive sectors such as utilities, and this may signal some caution around both the natural resource sector, and global growth prospects more generally.’
