Investor Confidence Dips in October

The prolonged upheaval in financial markets seems finally to have hit home for investors with confidence dropping for the first time since June according to the State Street investor Confidence Index (ICI) for October.

The Global ICI fell to 104.3, down 4.6 points from September’s revised reading of 108.9. The decrease was led by a sharp 14.4 point drop in European ICI to 86.2 as well as a 5.1 point drop North American ICI to 104.0. In contrast, Asian ICI actually rose 4.1 points to 104.5.

The Index measures investor confidence or risk appetite quantitatively by analysing 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 risk appetite or confidence. A reading of 100 is neutral, and State Street says the index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors.

“Risk appetite contracted in October for the first time in five months as the Global ICI fell 4.6 points to 104.3,” says Rajeev Bhargava, head of investor behaviour research, State Street Associates. “The move was largely driven by weaker sentiment in Europe and US, with the former falling just over 14 points, likely driven by escalating concerns that the European Central Bank may be well behind in the tightening cycle and therefore bring hikes forward.

“In addition, growing unease around UK fiscal outlook contributed to the volatility across European markets and in turn to the decline in confidence locally. Interestingly, confidence of Asia investors was more resilient in October as the regional ICI increased over 4 points,” he adds.