Investor confidence index rises from 70.2 to 79.6 in Apri

Date: Wednesday, April 22, 2009
Author: Hedgeweek.com

Global investor confidence rose by a healthy 9.4 points from 70.2 in March to 79.6 in April, according to the State Street Investor Confidence Index.

Confidence was up in all three regions tracked. Among North American investors, the benchmark rose ten points from 60.2 to 70.2. European investors saw their reading increase five points from 63.9 to 68.9. A more modest increase was recorded among Asian investors, where the index rose by 0.7 points from 86.6 to 87.3.

Developed by Ken Froot and Paul O'Connell through State Street Global Markets' research partnership, State Street Associates, the State Street Investor Confidence Index measures investor confidence on a quantitative basis by analyzing the actual buying and selling patterns of institutional investors.

The index is based on financial theory that assigns precise meaning to changes in investor risk appetite, or the willingness of investors to allocate their portfolios to equities. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.

'The data reveal that institutional investors have participated with some enthusiasm in the recent market recovery,' says Froot. 'For example, monthly flows into US stocks are currently in the 98th percentile. Our measure of investor confidence, which goes beyond pure measure of flow, shows that the foundation for this rally was laid with the turnaround in risk appetite that began last September.'

'Despite this month's increase in the Global Index, the third in four months, we think there is room for some caution,' adds O'Connell. 'This month is the first since September 2008 in which institutional investors globally increased their allocation to risky assets, but significant questions remain about the path and pace towards recovery, both in the US and further afield. The global nature of the current financial crisis means that estimates of recovery time based on individual country examples from history may be too optimistic, and this is likely to weigh on investors' minds as we move through the second quarter.'

Beginning 26 May 2009, the index will be enhanced to provide additional information on the level of institutional investor risk appetite. Going forward, the index will be rebased so that a reading above 100 will indicate institutional investors are increasing their exposure to risky assets, while a reading below 100 will imply that they are reducing their exposures. This rebasing will be done separately for the Global Index and the regional sub-indices. In addition, the publication dates for the indices will be shifted to the last Tuesday of each month, to better align with calendar-month and quarterly developments.