Risk stance unchanged while confidence drops, says State Street

Investor confidence slumped in July but institutional investors have broadly maintained their stance on risk, according to State Street Associates founding partner Kenneth Froot.

The State Street Investor Confidence Index fell 2.6 points in August from 107.7 to 105.1.

Although all regions saw declining confidence levels, the fall was mainly driven by European and Asian investors, State Street said, with European confidence falling 8.2 points to 97.1 and Asian confidence falling 7.6 points to 93.

North American investors fell 1.5 points to 112.5.

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Froot said institutional investors had maintained their risk stance and only reported a modest pull-back.

"The consensus is certainly that monetary authorities in the US will shortly begin to cut back on the monetary stimulus that has been in place for some time now, but there is recognition that this will only occur in response to improved US fundamentals," he said.

"Certainly, the recently-announced policy that short-term interest rates will be tied to the rate of unemployment lends support to this view."

Countries with larger account deficits such as Brazil and India that experienced pressure on currency brought confidence down a notch in Asia, according to Froot.

Although investors quickly sold emerging market bonds, there was no evidence of depleting interest in emerging market equities — and a portion of cash freed up by fixed interest sales had been re-invested in equities, Froot said.

"We also note that flows to countries less exposed on the current account deficit side, such as China and South Korea, have been relatively strong," he said.