Global investor confidence rose in May, led by institutional investors in Europe, as concerns over the European sovereign debt crisis eased slightly and optimism increased for the Japanese outlook amid that country’s ambitious economic policies, according to State Street.
State Street’s Global Investor Confidence Index (ICI) rose 1.8 points in May to 94.8 from a revised reading of 93.0 in April, the firm says. The biggest increase in investor confidence came in Europe, pulling up the European ICI by 5.6 points to 93.3 from a revised April reading of 87.7 points.
‘The uptick in the European ICI is a welcome development, as it represents a positive change of almost one standard deviation,’ Paul O’Connell of State Street Associates says in a press release. ‘It remains the case that the European index is below the neutral level of 100, and it may take an improvement in European growth prospects to alter this. Looking at actual buying patterns, institutional investors continue to favor Europe ex UK, emerging markets and Japan, with less enthusiasm for non-Japan Asia.’
Confidence among Asian institutional investors boosted the Asian ICI by 0.8 points to 86.0 in May from 85.2 in April, according to State Street. The increase came as the Bank of Japan boosted its ambitious program of government bond buying in an attempt to spur inflation after more than a decade of deflation.
Investor confidence in the US was down slightly in May after its gains in April, but remained in positive territory. The North American ICI fell by 2.2 points to 102.5 in May after it jumped 10.5 points in April to a two-year high.
Harvard University’s Professor Kenneth Froot, who helped develop the State Street index, says May marked an increase in investment in assets deemed as carrying a higher risk as well as in emerging markets.
‘Institutional investors continued to augment their allocations to risky assets this month, albeit at a slower pace than we observed in either the first quarter, or the last weeks of April,’ Froot says. ‘Institutional investors have allocated more towards emerging markets since the middle of April. This may reflect a view that the gradual slow down in emerging markets growth rates is ‘priced in,’ and that emerging markets equities are offering better value than their major-market counterparts after recent price moves.’
The State Street indices measure investor confidence, or risk appetite, by analyzing buying and selling patterns of institutional investors. A reading of 100 is neutral, while below 100 indicates a reduced appetite for risk.
