European Investors Take on More Risk as Confidence Grows

Institutions starting to breathe easier over their equity allocations, State Street Global Markets finds.

(May 29, 2013) — Institutional investors’ risk appetite is growing apace, with Europeans seeing their confidence index rating rise from 87.7 in April to 93.3 in May, according to new research from State Street Global Markets.

The bank’s Investor Confidence Index also showed Asian institutions were putting more risk back on the table, with the Asian index ticking up to 86.0 from April’s reading of 85.2.

The burst of assurance has waned in North America however, as confidence declined by 2.2 points to finish at 102.5 for the month.

The figure means North American investors continue to be overweight in their allocation to equities – a reading of 100 is neutral, where investors are neither increasing nor decreasing their long-term allocations to risky assets. The greater the percentage allocation to equities, the higher the risk appetite or confidence.

“Institutional investors continued to augment their allocations to risky assets this month, albeit at a slower pace than we observed in either the first quarter, or the last weeks of April,” said Kenneth Froot, Harvard University professor and co-creator of the index.

“While the returns on emerging markets equities have lagged substantially behind those on developed markets equities this year, institutional investors have allocated more towards emerging markets since the middle of April. This may reflect a view that the gradual slowdown in emerging markets growth rates is ‘priced in,’ and that emerging markets equities are offering better value than their major-market counterparts after recent price moves.”

The State Street Investor Confidence Index was developed by Harvard University professor Froot and Paul O’Connell of State Street Associates. It measures investor confidence or risk appetite quantitatively by analyzing the actual buying and selling patterns of institutional investors.

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