Brexit and Turkey spook investors

Institutional investors became spooked by both Brexit and the failed military coup in Turkey, according to the latest State Street Investor Confidence Index.

The Global investor confidence index (ICI) decreased to 98, down 7.7 points from June's revised reading of 105.7. The decline in sentiment was driven by a decrease in the European ICI from 100.3 to 92.4. The North American ICI also dropped by 5.9 points to 99.9 along with the Asian ICI falling 5.2 points to 108.

Commenting on the index, State Street Associate's Ken Froot said the numbers for July signalled unequivocally a decline in institutional investor confidence.

"Not surprisingly, risk aversion surged as market participants grappled with the wider implications of Brexit and Turkey's recent geopolitical turmoil," he said. "Global growth prospects, while being already lacklustre, have worsened, and institutional investors responded by putting the accumulation of risky assets on hold."

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State Street Global Exchange executive vice president and chief innovation officer, Jessica Donohue, said that looking regionally, it was clear that the setbacks in July were felt most strongly by Europe-based institutional investors who were caught off guard by the Brexit referendum in June.

"Brexit is a visible sign that globalisation has come under heavy political pressure, and market participants are only in the first innings of assessing the impact of anti-globalisation measures on economic growth," she said.

"In Asia, institutional investors were more optimistic, with the ICI reading above the critical 100 level. The positive sentiment was likely driven by good news out of China, with its Q2 GDP growth beating consensus."