The increase was driven by North American institutions, whose confidence rose 7.8 points from December’s (revised) level of 78.5 to reach 86.3. Institutional investors in Asia also felt more optimistic, and this pushed the Asian ICI up from 87.1 in December to 91.0 in January, an increase of 3.9 points. In contrast, risk appetite among European institutional investors extended its decline, falling 4.5 points from a (revised) reading of 94.1 in December to settle at 89.6.
The State Street Investor Confidence Index was developed by Harvard University professor Kenneth Froot and Paul O’Connell of State Street Associates. 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.
“2013 has opened with something of a turnaround in demand for global equities by institutional investors,” commented Froot. “This comes on the heels of a two-and-a-half-year period of persistent ‘de-risking’ by these institutions. We will be watching the data closely to see if this is a short-term deviation from trend, as we saw in mid-2012, or whether it signals a more concerted effort to rebuild core equity positions.” More information is at http://www.statestreet.com/investorconfidenceindex/.