Institutional Investor Confidence Rises, But…

December 29, 2009 ( – Institutional investors seem to be broadly more optimistic, but it matters where you are.

According to the State Street Investor Confidence Index for December 2009, Global Investor Confidence rose by 3.1 points to 103.9 from November’s level of 100.8.   

However, while in Asia, investor confidence rebounded by 6.3 points, rising to 97.5 from November’s reading of 91.2, confidence remained largely constant in other regions. For example, investors’ sentiment rose moderately in North America from 102.2 to 103.1, while in Europe risk appetite declined slightly from 104.8 to 104.6, according to the report published by State Street Global Markets, the investment research and trading arm of State Street Corporation.      

Developed through State Street Global Markets’ research partnership, State Street  Associates, by Harvard University professor Ken Froot and State Street Associates Paul O’Connell, the State Street Investor Confidence Index measures investor confidence on a quantitative basis by analyzing the actual buying and selling patterns of institutional investors. According to a press release, the index is based on a financial theory that assigns precise meaning to changes in investor risk appetite. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.       

“This month’s up-tick in global investor confidence stemmed largely from an improvement in the mood in Asia, where risk appetite rose to an eight-month high,” commented Froot. “Elsewhere portfolio reallocations were modest. With three of the four indices over the neutral level of 100, institutions are continuing to add to their risky asset positions, but at a slower pace than was evident earlier in the year. Investors will be watching for signs of renewed economic growth, and well-designed exit strategies from policy makers, before making more significant reallocations towards risk in 2010.”