State Street Global Markets reported that investor confidence increased in November, according to the latest reading from the State Street Investor Confidence Index.
According to the November index, investor confidence increased to 86.9 from October’s reading of 78.6. Looking regionally, the confidence of North American institutional investors rose from a revised reading of 94.0 in October to 103.4 in November. European and Asian investors displayed slightly lower confidence, with the European Index falling from 70.6 to 69.9, and the Asian Index declining from 85.4 to 83.3.
The index measures investor confidence on a quantitative basis, analyzing actual buying and selling patterns of institutional investors. The index is based on financial theory that assigns precise meaning to changes in investor risk sentiment, or the willingness of investors to hold proportionally more or less of their portfolio in equities. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.
“We have seen that institutional investors have concurred with market prices and with consumers about higher confidence. For our institutional investors, this translates to acquisitions of risky assets across their diversified portfolios,” said one of the index’s founders, Harvard University professor Ken Froot. “Some of the macroeconomic touch points in the U.S., such as inflation, appear to be under better control than previously thought, as the Fed shifts to inflation targeting, as energy prices decline, and as the end to Fed rate increases draws near. By contrast, the European central bank may have choked off this salutary effect by making noise about beginning to raise rates only once the inflationary threat seems poised to recede.”
“It’s clear that today’s increase in investor confidence is driven entirely by improved sentiment in the U.S.,” added index co-founder State Street Associates director Paul O’Connell. “European levels of confidence are very low and remain broadly unchanged this month, and Asian confidence, which has been more robust in the past, has fallen again. It is helpful that the recent conservatism of U.S. investors in taking risk is being reversed. We are still waiting for a meaningful upward change in confidence levels to take hold in the rest of the world.”