The State Street index measures investors' actual buying and selling behaviour rather than simply polling them about their views.

Investors’ increased optimism of recent months as markets recovered hit a speed bump in July, according to a barometer of buying and selling activity from US financial group State Street.

The State Street Investor Confidence Index® for July slipped to 84.8, dropping from June’s revised reading of 94. The North American ICI was down 9.1 points to 76.7, and the Asian ICI was down 13.7 points to 86.7, showing the largest declines. The European ICI also fell, albeit by a much smaller magnitude, dropping to 117.8 from 119.9. 

The index measures investor confidence or risk appetite quantitatively by analysing the actual buying and selling patterns of institutional investors. The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher risk appetite or confidence. A reading of 100 is neutral; it is the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets. The index differs from survey-based measures in that it is based on the actual trades, as opposed to opinions, of institutional investors.   

“Risk appetite pulled back this month after reaching the multiyear highs that were recorded in June, although this still makes July the second strongest showing for the ICI in a year,” Marvin Loh, senior macro strategist, State Street Global Markets, said. 

“While economies continued to open, the mounting number of virus cases in the US and across various emerging markets tempered last month’s positive momentum. The European ICI fell the least, as the virus remains more contained than [in] other parts of the world. Interestingly, sentiment in Asia also deteriorated even though the region was the first to emerge from lockdown, as a prolonged economic recovery may now be impacting investor outlook,” Loh said.