Investor Confidence Commentary

Date: Tuesday, October 27, 2009
Author: Andrew Capon, State Street Global Markets

State Street Global Markets, the investment research and trading arm of State Street Corporation (NYSE:STT), today released the results of the State Street Investor Confidence Index^® for October 2009. 

      Global Investor Confidence fell by 10.0 points to 108.4 from a revised September level of 118.4. The most pronounced decline was evident among North American investors, where confidence fell 12.8 points from 113.9 to 101.1. European investor confidence followed suit, declining 9.3 points from 111.1 to 101.8. By contrast, Asian investors felt somewhat more upbeat about risk, and there investor confidence rose from 92.9 to 95.3. A reading of 100 in the Index represents a neutral level where institutions are neither allocating towards nor away from risky assets.

     Developed through State Street Global Markets’ research partnership, State Street Associates, by Harvard University professor Ken Froot and State Street Associates Director 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. It is not a survey, but rather fact-based. 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, institutional investors have paused to take stock,” commented Froot. “The Global Index reading of 108.4 remains comfortably above the neutral level of 100 for a seventh consecutive month, but underlying flows have been tempered somewhat from the very strong levels of July and August. While the US earnings season has been relatively robust so far, the number of positive surprises that have been observed in employment, retail sales, manufacturing and trade figures has diminished considerably, and this may be influencing investor risk appetite.”

“Looking at the underlying data by region, we have seen less interest on the part of North American investors to add further to their holdings of foreign equities, particularly Japan and the UK,” added O’Connell. “At the same time, non-US interest in US markets has picked up. It adds up to a mixed picture where institutional investors have become more discriminating in selecting target markets than was true over the summer, and are looking to balance country-specific prospects against the slow but steady improvement in the fundamental backdrop.”