Investors around the world became less confident in August compared to the previous month, a trend driven primarily by cautiousness in Europe and Asia.
The Global Investor Confidence Index (ICI) fell to 105.1 points in August, down 2.6 points from July’s revised reading of 107.7, according to the State Street Global Exchange, the investment research and trading arm of State Street Corp.
A reading of 100 is neutral. It denotes the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets.
Although all regions saw a decline in confidence, the sentiment was most prominent in Europe and Asia. European confidence dipped by 8.2 points to 97.1. Asian confidence fell by 7.6 points to 93. North American investors also became somewhat more conservative, reporting a decline of 1.5 points to 112.5 from July’s revised reading of 114.0.
“Notwithstanding the turbulence in markets witnessed this month, especially in some emerging markets, institutional investors have broadly maintained their stance on risk, with only a modest pullback seen in the global index,” says Kenneth Froot, a Harvard University professor who co-developed the State Street ICI.
“The consensus is certainly that monetary authorities in the U.S. will shortly begin to cut back on the monetary stimulus that has been in place for some time now,” Froot explains. “But there is recognition that this will only occur in response to improved U.S. fundamentals.”
The renewed caution in Asia is largely due to the strain on some of this region’s currencies, explains Paul O’Connell, State Street Associates director. He is the other developer of the State Street ICI.
“The pressure exerted on the currencies of large current-account-deficit countries—notably Brazil and India—has certainly put a dent in confidence,” says O’Connell. However, while investors have been eager to sell emerging market bonds, no evidence exists yet that their appetite for emerging market stocks is waning, he adds. “Indeed, a portion of the cash released by fixed income sales has been recycled into equities.”
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