SSgA: European Institutional Investors Gain Confidence, North Americans Lose It

According to State Street Global Markets, European institutions increased their allocations to risky assets in December, while North American and Asian institutions did the opposite.

(December 29, 2011)—Perhaps counter-intuitively, European investors gained confidence in December while North Americans lost it, according to State Street Global Markets (SSgA).

The State Street Investor Confidence Index—which measures investors’ “risk appetite quantitatively by analyzing the actual buying and selling patterns of institutional investors”—collectively fell to 99.3 on the month, down 0.1 from a revised November figure of 99.4.

According to SSgA, the confidence barometer looks at institutional holdings of equities; the greater allocation to equities, the higher the confidence, the logic being that if investors are willing to hold relatively risky assets, their confidence in the investing environment is greater. A reading of 100 is neutral, meaning that investors neither are increasing nor decreasing their allocations to risky assets.

Geographically, the breakdown was as follows: Among North American investors, confidence fell 2 points to 96.4; among Asian investors, the barometer fell 1 point to 93.7; among European investors, the index shows an increase in confidence of 0.6 points, up to 102.2.

“The small declines this month were offset by upward revisions to last month’s numbers. As a result, we would describe investors as being in a holding pattern,” Harvard Professor Kenneth Froot, a co-developer of the index, said in a release. “The meeting of European policy makers on December 9th did not address the over-arching questions in the minds of global investors, and they are likely looking forward to the first quarter of 2012 for greater clarity on the prospects for risk allocations in their portfolios.”

Co-developer Paul O’Connell of State Street added: “Looking regionally, European investors are more optimistic than their North American and Asian peers for the second consecutive month. This is a turnabout from the first half of the year, when European investors showed the most pessimism. It does not necessarily mean that prospects for the European region itself have improved, but it does suggest that European institutions are more willing to allocate to equities both inside and outside Europe than they were earlier in the year.”