Investor Confidence Index Falls from 100.8 to 91.6 in February

State Street Global Markets, the investment research and trading arm of State Street Corporation, released the results of the State Street Investor Confidence Index® for february 2011.

Globally, Investor Confidence fell 9.2 points from January’s revised reading of 100.8 to reach 91.6. As was the case in January, declines were evident across all regions. The risk appetite of North American institutional investors fell to 92.5, a 6.8 point decline from the January level of 99.3. Confidence among Asian investors fell by a similar margin, slipping 4.3 points from January’s revised number of 96.5 to 92.2. In Europe, where the most telling signs of retrenchment are evident, with institutional investor confidence declining 13.0 points, from 92.8 to 79.8.

Developed by Harvard University professor Kenneth 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. The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher is risk appetite or confidence. A reading of 100 is neutral; it is the level at which investors are neither increasing nor decreasing their allocations to risky assets. The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors.

"The numbers this month are fairly emphatic in signaling a decline in institutional investor confidence,” commented Froot. “Political turmoil in the Middle East and North Africa, policy tightening in emerging markets and qualms about the pace of the recent run-up in developed markets equities are likely at the root of this. In the case of European investors, there is the added uncertainty around the upcoming March negotiations on sovereign debt and the European Financial Stability Facility to consider."

"Looking at the underlying data, we see that institutional flows into emerging markets and Asia Pacific, excluding Japan, continue to fade from their highs in the third quarter of last year," added O’Connell. "This coupled with a discernible lack of interest in US equities has driven the confidence measures down. On a relative basis, there is some preference among institutions for the financial and energy sectors, but overall, it’s fair to say that institutions are reluctant to commit to further equity allocations at this time."