US institutional investors are becoming bearish and unwilling to hold risk in their portfolios, in stark contrast to their European and Asian counterparts, according to the authoritative State Street global markets investor confidence index.
The index, details of which have been released this week, measures portfolio-wide purchases of risky securities to gauge the risk appetite of institutional investors.
According to Paul O’Connell of State Street Associates, the February index declined by 1.8 points.
“This month’s downward step shows that institutional investors have become less willing to hold risk in their portfolios,” O’Connell said.
“And when looking across investors regionally, it appears that it was US investors who led the way,” he said. “Their tolerance for risk fell rapidly during late January and early February, bringing down the overall worldwide index value.”
O’Connell said this contrasted with European and Asian investors who were actually willing to bear more, not less, risk.
One of the developers of the index, Harvard University Professor, Ken Froot said the numbers suggested that the recent rally in equity markets might be limited.
“Interest rate increases and downward growth revisions have set a more conservative tone for US investors,” he said.
By comparison, Froot said Asia was enjoying rapid credit growth which was likely to continue until Japan moved to increase interest rates.
