Investor confidence declined in August, according to recent figures from State Street Global Markets.
The State Street Investor Confidence Index declined to 89.6 in August, down 12.9 points from July’s revised reading of 102.5. The most significant decline was exhibited by North American investors, with confidence decreasing to 88.6, down 13.9 points from July’s revised level of 102.5.
Declines were more muted elsewhere, with the European Index sliding 4.6 points to 90.5, down from July’s revised reading of 95.1. Amongst Asian investors, confidence decreased 0.6 points from July’s revised level of 95.8, to 95.2.
The State Street Investor Confidence Index measures investor confidence or risk appetite by analyzing the 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 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.
“Perhaps not surprisingly, the elevated level of volatility this month took its toll on investor sentiment,” commented Kenneth Froot, professor at Harvard University and co-developer of the index. “Diminished growth expectations, the downgrade of the U.S. sovereign debt rating and continued difficulties around European sovereign financing all combined to cause institutional investors to reduce their allocations to risky assets. The key question that investors are grappling with is whether elevated levels of stress in the financial system will have real effects on the economy.”