Global investors up risk appetite

Increase in confidence led by gains in Asia and North America, while European confidence declines, State Street survey says

Global investor confidence rose for a second straight month in January as US politicians grappled with the ‘fiscal cliff’ and fears over the European sovereign debt crisis seemed to recede, according to State Street Global Market’s confidence index.

The index rose 5.4 points to 86.8 points in January from 81.4 in December, mainly driven by rising optimism among institutional investors based in the US and Asia, State Street says. The index for North American investor confidence increased 7.8 points to 86.3 from December’s revised level of 78.5 points.

‘2013 has opened with something of a turnaround in demand for global equities by institutional investors,’ say index developer Harvard University professor Kenneth Froot. ‘This comes on the heels of a two-and-a-half year period of persistent ‘de-risking’ by these institutions. We will be watching the data closely to see if this is a short-term deviation from trend, as we saw in mid-2012, or whether it signals a more concerted effort to rebuild core equity positions.’

Besides the increase in confidence in North America, Asian investor confidence rose to 91.0 points in January from 87.1 in December on increasing optimism over Chinese economic growth. In Europe, investor confidence continued its drop, falling 4.5 points to 89.6 points in January from 94.1 in December, according to State Street.

The US fiscal cliff, which was only partially solved at the start of January and awaits further negotiation in coming months, plus the simmering European sovereign debt crisis, have dragged down investor optimism over the past six months or so, while fears of slowing economic growth in China have aggravated the concerns.

A partial resolution to the fiscal cliff, the European Central Bank’s pledge to do ‘whatever it takes’ to ease the eurozone’s problems, and December data that indicated continued Chinese growth have helped spur global optimism at the start of 2013.

Despite the increase in investor confidence, the global index is still down from the January 2012 level of 92.6 points and is far off its March 2007 peak of 118.9 points. The Asian index is below its year-ago level of 96.6 points and the European index is below its January, 2012 level of 91.2 points.

The State Street indices measure investor confidence, or risk appetite, by analyzing buying and selling patterns of institutional investors. A reading of 100 is neutral, while below 100 indicates a reduced appetite for risk.

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