State Street Global Markets’ Investor Confidence Index for January 2011 shows global investor confidence fell 3.3 points to 100.9 from December’s revised reading of 104.2. Declines are reported across all regions.
The risk appetite of North American institutional investors fell to 99.5, a 3.6 point decline from December’s 103.1. Similarly in Europe, institutional investor confidence slipped 3.9 points to 93.5 from December’s revised 97.4. The decline in confidence among Asian investors was even more pronounced, a 5.4-point tumble from 102.9 to 97.5.
The index measures investor confidence quantitatively by analyzing the buying and selling patterns of institutional investors. It assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher is risk appetite or confidence.
“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,” says Kenneth Froot of Harvard University, who developed the index together with Paul O’Connell of State Street. Froot continued: “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.”