The measures of risk appetite are based on the buying and selling behaviours of investors rather than from opinion surveys.

A barometer of risk appetite from State Street in October has retreated to a “neutral” level as investors favoured defensive stocks. Even so, global stocks reached fresh highs last month.

Yesterday, State Street Markets released the results of its latest State Street Institutional Investor Indicators.

The State Street Risk Appetite Index has taken a step down from the highest level all year to a neutral reading. The US firm said institutional investors are not turning risk-averse, instead they have increased their allocation to stocks to an 18-year high.

“Notwithstanding this constructive risk backdrop, institutional investors are getting a little bit more cautious with their relative trades/intra-portfolio allocations. This has driven our Risk Appetite Index to a neutral reading,” Marija Veitmane, head of equity research, State Street Markets, said.

A lurking concern, as this publication has reported, is whether high valuations for AI-adjacent Big Techs, for example, are sustainable, and whether investors need to diversify. 

Equities have generally gained ground this year. For example, the MSCI World Index of developed countries' equities shows total returns (capital growth plus reinvested dividends, in dollars) is up 19.7 per cent since the start of January.

Shifts
Within equities, Veitmane said, the firm has seen a “shift in preferences from cyclical to defensive stocks, which was mostly driven by improving appetite for healthcare stocks.”

“More importantly, institutional investors show unwavering support for [the] all important technology sector. Not surprisingly, we have seen buying of technology-heavy Asian markets – like [South] Korea and Taiwan. In contrast, institutional investors sold Japanese stocks after the election reflecting concerns about the success of proposed reforms, given BOJ concerns about bubbling inflationary pressures,” Veitmane said. 

In foreign exchange markets, there has been “tentative” buying of the dollar during October from an “extreme underweight position.” 

“[The] dollar has historically been a safe-haven currency though this was not the case earlier this year,” Veitmane continued. “Another important indicator we are watching in [the] FX space is USD (dollar) hedging. So far, we have seen only a small increase in hedging of US stocks by foreign investors. Perhaps, falling cost of hedging might encourage this trend going forward.”

State Street’s Institutional Investor Indicators (the “three Is”) were developed at State Street Associates, State Street Markets’ research and advisory services business. They measure investor confidence or risk appetite quantitatively by analysing the actual buying and selling patterns of institutional investors. This data comes from State Street’s $49 trillion (as of second quarter 2025) in assets under custody and administration (not investors’ balances held at State Street itself).