Risk appetite increasing as investor confidence rises 5.1 Points in August

Dan Barnes

State Street Global Markets has released the results of the State Street Investor Confidence Index (ICI) for August 2022.

The Global Investor Confidence Index increased to 107.3, up 5.1 points from July’s revised reading of 102.2. The increase was led by a 20.4 point jump in European ICI to 106.0. North American ICI rose as well, up 2.1 points to 106.5. Asian ICI, meanwhile, fell 0.9 points to 92.4.

Market conditions have been ‘risk-off’ in 2022, which has limited market making activity as sell-side firms seek to minimise exposure to risk in volatile market conditions and buy-side firms see investor outflows.

The Investor Confidence Index was developed at State Street Associates, State Street Global Markets’s research and advisory services business. It measures investor confidence or risk appetite quantitatively 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 risk appetite or confidence. A reading of 100 is neutral; it is the level at which investors are neither increasing nor decreasing their long-term 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.

Rajeev Bhargava, head of Investor behaviour research at State Street Associates.

“Risk appetite in August continued on a positive path as the Global ICI rose just over 5 points to 107.3, largely fueled by an uptick in sentiment across US and in particular European investors,” commented Rajeev Bhargava, head of Investor behaviour research at State Street Associates. “Despite the many potential headwinds, including rising inflation concerns and energy security facing the European economy, interestingly, European investors have moved from a risk averse posture to a more neutral posture over the past month as markets rallied through much of August. Even after the selloff over the past week, net flows by European investors have been from developed to emerging market stocks, which has driven up the confidence score. However, it is going to be important to monitor whether the enthusiasm persists given recent heightened volatility in equity markets on the back of increasingly hawkish Fed speak.”

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