The index shows global investor confidence to have risen – by 9.3 points to 97.5 from October’s 88.2 – but the geographical breakdown looks rather curious.
North America investors are shrugging off the somnolent recovery and the last-chance-saloon feel of QE II to be 12.2 points more confident in November – 97.1 – than they were in October when the index registered a mere 84.9.
Likewise, the Europeans seem unconcerned about the possibility of sovereign debt restructuring or that the continent’s banks may still be sitting on assets that smell more than decomposing Dublin Bay prawns. Confidence among European investors is apparently up a stunning 15.9 points to 112.2 from 96.3 in October.
It is Asian investors, located in the hotbed of recovery hopes, who display some restraint: confidence has declined by 8.0 points from October’s level of 103.2 to 95.2 in November. Furthermore the decline would have been larger – 9.1 points – had there not been a re-weighting “within the Asian index to better reflect the relative importance of institutional investors across the various markets in that region,” says State Street.
The index is not survey-based but is quantitative. It “assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher is risk appetite or confidence.”
From one angle, the index isn’t saying much – the levels are oscillating around the neutral 100 level, yet the question remains: why, in November, was the view from the West rosier than that from the East?”
Kenneth Froot and Paul O’Connell, the creators of the index, note the general improvement in confidence. Froot says: “Confidence in North America remains below the neutral level of 100, but overall the numbers are indicative of an improved attitude to risk as valuations have declined from the early November highs.” Funny that, isn’t it? It appears these equity investors distain buying into an uptrend but are happier to buy when markets have sold off.
O’Connell reckons: “Looking at the underlying data, we continue to see an appetite for emerging markets and growth economies, at the expense of the developed world. The confidence reading for Europe is indicative. Sovereign debt concerns have roiled domestic markets within the region and institutional investors domiciled in Europe have shown a renewed interest in deploying risk globally, despite the uncertainties at home.”
So although disturbed by the domestic scene, the Europeans are still happy to increase equity holdings. The Asians, however, with domestic concerns about Chinese inflation, ever-perpetual Japanese deflation and a small hiatus in the Australian economic miracle have decided to cash up a little. They can’t both be right.
