Sub-Prime Crisis Fails to Dent Investor Confidence

Chris Owen

23 August 2007

Confidence among global institutional investors rose in August despite sharp volatility on financial markets, according to State Street Global Markets, the investment research and trading arm of US financial services provider State Street. State Street’s global Investor Confidence Index, based on data taken until mid-August, rose to 99.3 from 86.3 in July. A rise in the index generally indicates that investors have been picking up riskier assets such as equities, rather than safer ones such as bonds. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence. Given the recent market dislocation stemming from the sub-prime mortgage crisis, this might seem paradoxical. MSCI's main world stock index has fallen nearly eight per cent since State Street's last confidence report. But, said State Street, it must be remembered that for every seller, there is a buyer. "Many market participants sold heavily," said Harvard University Professor Ken Froot, a co-developer of the index, "but institutional investors were not among them. Instead, they took the other side of the trade, and accumulated assets at relatively attractive price levels across a broad cross-section of markets." The data showed that North American investors had been particularly active, being net sellers in early July, but steadily buying after 23 July. State Street's North American regional index rose to 116.5 from 95.5, while the European index dropped from 90.4 to 86.4. Asian investor confidence showed a marginal rise from 83.5 to 84.1. The indices are based on actual buying and selling of assets within the $13 trillion State Street holds as custodian for institutional investor clients. The firm also has $1.9 trillion in assets under management.