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Jan 03, 2016

Global investors start 2016 with note of caution

Investor confidence ends 2015 little changed from start of year, according to State Street Investor Confidence Index

Global investor confidence rose slightly in the last month of 2015 and remained little changed from the start of the year due to increased investor caution and concerns about the Chinese economy and the outlook for commodities prices, according to State Street Global Exchange.

State Street’s Global Investor Confidence Index (ICI) rose to 108.3 at the end of December 2015, up one point from the end-November level of 107.3 and down from 112.1 at the end of December 2014. In January 2015 the Global ICI ended at 106.7 points.

Throughout 2015, investor optimism fluctuated due to intense summer volatility in Chinese markets, slowing Chinese economic growth, speculation about an interest rate increase by the US Federal Reserve ‒ which finally happened on December 16 ‒ and quantitative easing by the European Central Bank (ECB).

In June the index hit the year’s peak of 127 points, after the ECB announced it would start its program of sovereign quantitative easing. It hit its lowest point in February (105.2 points) amid higher expectations the Fed would soon raise interest rates.

The increase in December was driven by a sharp gain in Europe, with the European ICI rising 7.5 points to 103.7. The North American ICI fell 5.9 points to 106.6 while the Asian ICI increased 4.6 points to 105.1, according to a State Street Global Exchange press release.

‘US investors have been showing an appetite for risk for much of 2015, but have been increasingly risk-averse into year-end as uncertainty about global growth, weak commodity prices and the beginning of the Fed tightening cycle have eroded confidence to take risk,’ says Ken Froot, who helped design the index, in the release.

State Street senior managing director Michael Metcalfe says the boost in European confidence in December came despite the ECB’s failure to boost asset purchases in the month, as market participants had expected. ‘It appears European long-term investors were more forgiving as their allocation to risky assets went up over the course of the month,’ he says.