European investors show higher appetite to equities

 Its State Street Investor Confidence Index (ICI)  showed that in the month the outlook of European investors improved, with the European ICI rising 4.0 points from January’s revised reading of 91.2 to reach 95.2. In Asia, investor sentiment stayed relatively static, ticking down 0.3 points from a revised January reading of 96.6 to end at 96.3. The decline was most pronounced among North American investors, whose confidence fell 9.5 points to 80.5, its lowest reading in more than three years.
 Globally, the ICI fell to 86.5, down 6.1 points from January’s revised level of 92.6.
 “Across the regions there was a significant divergence this month,” Paul O’Connell of State Street Associates who helped developed the index with Harvard University professor Kenneth Froot.
 “The latest round of policy developments in Europe went some way towards lowering the risk of a catastrophic ‘tail event’ crisis, and this improved the mood of European investors. Asian investors held their outlook constant, though we did note that net purchases of Pacific ex-Japan equities by all global investors were relatively robust. It is among US investors that the tendency to sell into the recent market strength was most pronounced.”
 Globally, institutional investors in the aggregate continued the pattern established late in 2011 of reducing allocations to equities, Froot added.
 “Given that equity returns have been positive over the last one and three months, it is clear that these institutions have been ‘liquidity providers’ in the market, comfortable with rebalancing their portfolios at these higher valuations. At the same time, we do note a pro-cyclical bias to the reallocation: institutions are keen to hang on to, or even increase, their holdings of pro-growth sectors such as industrial and consumer discretionary stocks, while cutting back on consumer staples, healthcare and telecom stocks,” Froot said.

Higher appetite for equities explained the spikes in Asian stock markets, including the Stock Exchange of Thailand. The market closed the morning session with a 10.75 points or 0.94 per cent gain, to 1,157.01 points. Turnover was as high as Bt16.6 billion, thanks to foreign fund inflows.

 The index measures investor confidence or risk appetite quantitatively by analysing the actual buying and selling patterns of institutional investors. The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher risk appetite or confidence. A reading of 100 is neutral; it is the level at which investors are neither increasing nor decreasing their allocations to risky assets. The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors.