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U.S. Investor Confidence Drops 10%: State Street

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State Street Global Exchange says investor confidence in North America weakened in November, falling nearly 12 points, or about 10%, to 112.9 from 124.8 in October.

While the Asian ICI dropped 9.3 points to 100.7, the European Investor Confidence Index bucked global trends and rose by 6.3 points to 96.5 this month. Overall, the Global Investor Confidence Index declined by 7.2 points, moving down to 106.8 from 114 in October – a decline of 6%.

“In November, the spotlight was once again on the Fed as investors adjusted to an increased probability of a December rate hike,” said Ken Froot, a co-developer of the index, in a statement. “The North American sentiment resonated globally, signaling investors’ lack of readiness for U.S. policy normalization, even if the pace is expected to be gradual.”

Asian optimism for investing has seen “a sharp turnaround,” according to Jessica Donohue, executive vice president and chief innovation officer for State Street, as a stronger U.S. dollar and continued commodity price declines “weigh heavily on the region.”

Investor sentiment in Europe saw some improvement tied to the prospects of further stimulus by the European Central Bank, Donohue explains. “Divergence in monetary policy, however, was not enough to bring European sentiment above the risk averse threshold.”

The Investor Confidence Index was developed by Froot and Paul O’Connell at State Street Associates, State Street Global Exchange’s research and advisory services business. The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors.

A reading of 100 is neutral and is the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets. The index is released on the last Tuesday of each month.

In October, the Global ICI decreased to 114.3, down 2.3 points from September. The decline in investor sentiment was driven by a drop in the North American ICI from 133.2 to 125.5 and a decline of 5.8 points in the European ICI, which fell to 89.9. In contrast, the Asia ICI rose by 13.2 points to 111.0.

“Despite the ongoing uncertainty about the global outlook and dovish comments from the Fed, global institutional investor confidence remains largely positive,” Froot said in late October. “Meanwhile, the increasingly accommodative stance taken by policymakers globally and hopes for state-owned enterprise reforms in China have had a large impact on Asian investors, boosting risk appetite by 13.2 points. This is the first time that the Asia ICI has ascended above the key 100 threshold this year, signaling a more ‘risk on’ climate.”

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