Investor confidence slides

By John Powell | August 31, 2010 | Last updated on August 31, 2010
2 min read

Institutional investors around the globe are not as self-assured or as positive as they were a few short months ago. According to the Global Investor Confidence Index issued by State Street Global Markets, investor confidence fell 4.4 points from July’s reading of 96.5 to 92.1.

Confidence among North American investors dropped 5.7 points to 95.3 from July’s reading of 101.

Confidence also declined among European investors, dropping 1.2 points from 99.9 to 98.7. Asia followed suit with confidence ticking down 1.6 points from 103.8 to 102.2.

“This month, the Global Investor Confidence Index gave back the modest gains recorded last month, providing evidence that institutional investors remain non-committal in the face of a weaker macroeconomic backdrop,” said Harvard University professor Ken Froot, one of the developers of the Index.

“August marks the fifth consecutive month that the Index has remained below the neutral level of 100,” he said. “Despite the relative strength of corporate balance sheets, question marks remain over the slow pace of economic recovery and the relative efficacy of policy measures to spur that recovery.”

Developed by Froot and Street Associates’ Paul O’Connell, the index measures investor confidence on a quantitative basis by analyzing the actual buying and selling patterns of institutional investors. The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher is risk appetite or confidence.

A reading of 100 is neutral; it is the level at which investors are neither increasing or decreasing their allocations to risky assets. The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors.


John Powell