The global State Street Investor Confidence Index is up by 3.5 points to 122.9 points in August from 119.4 in July. This marks a new record high level for the investor confidence index since mid-2004 and reflects the vast difference in sentiment from October 2008, when the index reached a historic low of 82.1 points.

Though a closer look at the figures reveals that Europe is solely responsible for lifting the global index. Unlike last month, Europe's investor confidence index was up by 4.3 points to 109.2 points, while in Asia the index fell 2.3 points to 91.8, and in the US it fell 2.2 points to 118.4.

August marks the eighth straight month that the global index has risen and the fifth straight 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. However, the 3.5-point gain in the global index in August was the smallest monthly rise since March of this year.

"This month's increase places the risk appetite of institutional investors firmly in the range that is associated with accumulation of risk exposures," says Ken Froot, a Harvard professor and co-developer of the survey at State Street Associates.

The rate of increase in the index has moderated relative to some months ago, however, suggesting that institutions are being somewhat selective in their allocations, Froot says.

Paul O'Connell, also a co-developer of the survey at State Street Associates, notes that there has been some increased regional variation across the Indices.

"While European institutional investors continued to catch up with their North American counterparts, in terms of reallocating out of cash, North American and Asian institutions displayed some ambivalence about further reallocations, given trends over the last six months," says O'Connell.

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.

Michael Metcalfe, an analyst at State Street Global Markets, says the overall survey results point to how much more investors are confident about the future compared to other groups, such as consumers.

"The hesitation seen in measures of consumer confidence in recent months is absent from the more forward looking institutional investor community," Metcalfe says. "This reinforces a trend seen since the beginning of the risk rally that the confidence of investors' has been far more resilient than any other fundamental or sentiment gauges."

Metcalfe notes, however, that regional components of the global index in August show the first fall in the confidence of North American institutions in five months.

"To the extent that North American investors have led the rise in confidence thus far, a modest pull back is perhaps not surprising," Metcalfe says. "However, the fact that the confidence of Asian investors also fell back in the month is more troubling, given that this is the region where most participants' recovery hopes are firmly pinned."

The slide in both the US and Asian indices, according to Metcalfe, reflect the "elements of doubt" that are creeping in and need to be monitored in the coming months.