Concerns over US debt ceiling debate and emerging market performance linger
Global investor confidence surpassed a four-year high in January as investors on all continents felt more certain of an economic turnaround.
The Global Investor Confidence Index (ICI) rose 18.6 points to 114.4 at the end of January from a revised reading of 95.8 in December, according to State Street Global Exchange. Index levels for North America, Asia and Europe were all above the neutral reading of 100 points as North American optimism recovered.
State Street’s North American ICI jumped 21.5 points to 113.6 in January – from 92.1 in December – easily beating the points gains of Asia and Europe combined. Six months of rising GDP, reduced anxiety over the US Federal Reserve’s policy of quantitative easing and rising housing demand have spurred increased optimism throughout North America.
The looming late-February deadline for Congress to raise the US federal debt ceiling, however, may dampen investor enthusiasm in coming months, State Street says.
‘Policy uncertainty was reduced in the US and confidence was boosted by optimism over the Fed’s policy of forward guidance, which may help anchor low interest rates in the future,’ says Jessica Donohue, senior managing director and head of research and advisory services at State Street Global Exchange, in a media release. ‘It will be critical to see how sentiment holds up during the debt ceiling debate given the renewed concerns over emerging market growth.’
The European ICI rose to 112.6 points in January from a revised reading of 107.5 in December. The European index has remained steadily in positive territory since August on investor perceptions that the worst of the continent’s sovereign debt crisis has passed and recovery has taken hold.
‘In Europe, stronger economic fundamentals and looser monetary policy led to improved sentiment,’ says Kenneth Froot, the Harvard University professor who helped design the index. ‘Easier financing conditions for peripheral European sovereigns and speculation for more unconventional measures by the ECB, given below target inflation, has led to broader optimism among institutional investors.’
Sentiment in Asia also climbed into positive territory, rising to 103.5 from 97.7, as optimism rose over Japanese economic policy and fears softened over a hard landing for the Chinese economy.
