Global investor confidence fell in July, led by North American investors, as geopolitical risk increased and many investors began to view North American stocks as overpriced, according to the State Street Investor Confidence Index (ICI).
The Global ICI dropped 4.6 points in July to 114.7 points from a revised reading of 119.3 in June. The drop was led by the North American ICI, which declined 5.8 points to 110.3 in July, while the Asian ICI fell 4.2 points to 92.1 from 96.2 in June. European confidence, however, increased 7.5 points to more than a seven-year high of 121.2, from June’s revised reading of 113.7.
Stock market gains in the past few years have led more investors to view North American share prices as expensive, subduing some of the optimism that has spurred markets to repeated record highs in recent years. At the same time, conflict in Ukraine has pitted the US and Russia against each other in a duel of economic sanctions and accusations, raising concern over global stability. The Ukraine conflict heightens uncertainty sparked by conflicts in Iraq, Syria, the Gaza Strip and elsewhere.
‘While valuation concerns in the US markets and rising geopolitical risk have dampened sentiment in July, North American confidence still remains relatively upbeat,’ says Jessica Donohue, senior managing director and head of research and advisory services of State Street Global Exchange, in a press release. ‘Institutions appear to be in wait-and-see mode this summer as they contemplate the future path of the Federal Reserve’s monetary policy.’
While geopolitical uncertainty spurred losses in investor confidence in Asia as well, Harvard University professor Kenneth Froot, who designed the ICI for State Street, says economic growth in China plus political reforms in Indonesia and India may lead to future gains.
He also attributes the increase in European confidence to positive signs from economic indicators and to a series of actions by the European Central Bank (ECB) designed to stimulate economic growth, including a negative deposit rate and liquidity injections.
‘Stronger growth metrics in Europe and the UK and well-received ECB policy actions helped boost European confidence, which reached its strongest level [in July] since May 2007,’ Froot says.
