North American investor confidence reaches 19-month high on prospects for renewed growth
Global investor confidence rose for a third straight month in February, rebounding from the record low set last November, as risk appetite continues to increase amid surging optimism over a possible global economic recovery, according to State Street Global Markets’ confidence index.
The index rose 8.7 points to 94.8 this month, up from the revised January level of 86.1. Optimism over an economic recovery in the US, a potential waning of the European sovereign debt crisis and expectations China will maintain a high rate of economic growth have boosted the State Street index steadily since November, when it hit a revised low of 80.5 points.
The increase in confidence is led for a third straight month by investors in North America, with the index for that continent surging 13.9 points from a revised 85.1, reaching a 19-month high. Optimism among European institutional investors increased at a slower pace, rising 2.8 points to 92.2. Asian investors experienced a loss of risk appetite this month, with the Asian confidence index dropping 4.5 points to 85.5, State Street says.
‘In February we saw continued demand on the part of institutional investors for equity securities,’ Harvard University Professor Kenneth Froot, who helped develop the index, comments in a news release. ‘Since reaching a record low in November, the appetite for risk has rebounded considerably.’
Froot warns, however, that a number of events this year could lower investor confidence again, including European politics and US fiscal policy, which is dominated at the moment by the so-called sequester that could automatically cut spending in some areas. Another risk this year is the possibility of the US Federal Reserve slowing asset purchases in its quantitative easing program.
‘There are a number of risks on the horizon that may give investors pause, including US fiscal negotiations, the outcome of the Italian elections and the direction of Fed policy, so caution is warranted,’ Froot says. ‘That said, it’s fair to say strong and persistent ‘de-risking’ by institutions that has characterized recent years has been suspended, at least for now.’
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.