State Street Says Institutional Investor Confidence Is Waning

(January 27, 2011) — New research from State Street finds that investor confidence is on the decline.

The firm found institutional investor confidence dropped 3.3 points to 100.9 in January from 104.2 the previous month. According to the index, confidence fell across all regions, with the risk appetite of North American institutional investors dipping to 99.5 from December’s reading of 103.1. Meanwhile, in Europe, investor confidence also fell by 3.9 points to 93.5 from 97.4. Asian investors also lost confidence, dropping 5.4 points from 102.9 to 97.5, according to the report by State Street Global Markets, the investment research and trading arm of Boston-based State Street Corp.

“Institutional investors reverted to a more cautious stance this month, balancing improved prospects for global growth against what has been a relatively rapid run-up in prices,” commented Harvard University professor Kenneth Froot in a release describing the findings. “With world equity prices up 6.9% over three months and 20% over six months, valuations have moved up a reasonable amount, prompting some in the institutional community to adopt a ‘wait-and-see’ stance. It remains to be seen whether improved macroeconomic data from the US and policy actions with respect to peripheral European debt will prompt an early reassessment of this stance,” according to the report. 

Developed by Froot and Paul O’Connell of 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. According to the firm, the index assigns a precise meaning to changes in investor risk appetite. A reading of 100 is neutral — representing a level at which investors are neither increasing nor decreasing their allocations to risky assets.