State Street investor confidence index at five-year high

The index level reflects the belief that the global economic recession will end faster that initially expected.

The global State Street Investor Confidence Index is up by 3.6 points to 119.4 in July from a revised level of 115.8 in June, with all regions registering a rise in index levels. This marks the highest level for the investor confidence index since mid-2004. The index level has come a long way since October 2008, when it reached a historic low of 82.1 points.

This month the investor confidence index in Asia was up by 1.9 points to 94.2, while it was up 6.7 points to 120.5 for North America, and 8.7 points to 104.6 for Europe. That's the best showing for the European Index since the third quarter of 2006. Last month Asia's confidence index level slid by 1.3 points.

July marks the fourth consecutive month that the global Index has remained above the neutral level of 100, the level above which institutional investors are increasing their allocations to risky assets.

"The index results strongly reflect increasing investor strategies designed with a view that the global recession will wane more rapidly than many had feared," says Ken Froot, a Harvard professor and co-developer of the survey at State Street Associates.

Froot notes that investors are now adding risk to their portfolios at an impressive rate, "faster than we have seen in several years". 

Paul O'Connell, also a co-developer of the survey at State Street Associates, says European confidence is much stronger this month, partly because of the concerns around the US appears to be abating and also because the contagion that might have brought down their own financial institutions seems to be dissipating fast.

Asia has seen less variation in expected growth rates than the West and confidence there continues to strengthen, although there was never such an Asian wholesale fear of risk, O'Connell adds.

The index was developed through State Street Global Markets' research partnership, State Street Associates, and measures investor confidence on a quantitative basis by analysing the actual buying and selling patterns of institutional investors. The index is based on financial theory that assigns precise meaning to changes in investor risk appetite, or the willingness of investors to allocate their portfolios to equities. The belief is the more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.

Separately, the ING Investor Dashboard pan-Asia index was up by 81% to 132 in the second quarter from 73 in the first quarter, with all markets within the region reflecting a major upswing for Q2 2009.

The Asian growth markets of China and India continued to lead investor sentiment in the region in the ING survey, indicating confidence in the performance of the region's economies. Developed markets like Hong Kong and Singapore, while still in recession, showed a considerable increase in investor optimism. Investors appeared to be optimistic about the US economic situation in this current third quarter. Asian investors also started to show signs of moving towards a less conservative investment approach, with inflation likely returning as their key concern over the long term.

The ING index is based on the analysis of a survey commissioned by ING and, for the first time, the survey was carried out by Research International. Before now, the survey has been conducted by research firm TNS. The term 'dashboard' refers to the graphics first used to present the results when the survey was launched, using the control panels of an automobile.

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