Investor confidence down driven by US and Asia

Data from State Street Global Exchange shows that sentiment in global stock markets waned in January, driven by a marginal loss of confidence in the US and Asia. However the firm says that the relatively modest fall may suggest that investors are viewing recent volatility as a buying opportunity.

The State Street Investor Confidence index (ICI) fell 1.5 per cent in January from 110.5 to 108.8 points. This compares to a rise of 1 per cent in December, however, the fall is far less than that seen in November when the index fell 10 per cent to 106.8 points despite steep global market sell-offs throughout January.

The index measures investor confidence and risk appetite by looking at the buying and selling patterns of institutional investors, with a reading above 100 considered bullish for global equities, and a reading below 100 considered bearish.

NORTH AMERICAN EFFECT

State Street claims that the decline in sentiment was driven by a decrease in the North American ICI from 110.5 to 108.8 points, along with the Asian ICI falling 1.5 points to 102.9. The European ICI - which increased in December - fell marginally by 0.1 points to 103.4.

Commenting on the slide in confidence, Jessica Donohue, executive vice president and chief innovation officer at State Street Global Exchange, says: 'We have seen an unprecedented slide in stock markets around the globe.

'Tumbling oil prices, a reaction to slowing demand in the face of a supply glut, and changing growth dynamics in China chipped away at investors' confidence over the past month.'

The fall in confidence is, however, arguably modest in comparison to the scale of the declines seen throughout global stock markets in January.

The UK's FTSE 100 index has shed nearly 6 per cent between 1 January and 27 January while the US's S&P 500 has lost 4 per cent and the EURO STOXX has fallen 4.5 per cent.

The sell-off has been led by sharp falls in the price of oil, which fell to below $27 a barrel on 20 January, as well as volatility in Chinese markets prompted by concerns over the country's move toward a domestic consumer-driven economy.

Accordingly, China's Shanghai Composite index has been one of the worst hit, losing over 21 per cent in the month to 27 January while Hong Kong's Hang Seng has lost 12 per cent and Japan's TOPIX has fallen by 8 per cent.

State Street's Kenneth Froot says that this may suggest investors are viewing recent volatility in a positive light.

'Fears around weakening Chinese growth and the collapse in oil markets have caused institutional investors to believe the additional spending released into the hands of consumers in non-commodity producing countries makes even this steep and sudden downdraft a buying opportunity,' says Froot.

He adds: 'Perhaps 2016 will be a happy new year after all.'

Subscribe to Money Observer Magazine

Be the first to receive expert investment news and analysis of shares, funds, regions and strategies we expect to deliver top returns, plus free access to the digital issues on your desktop or via the Money Observer App.

Subscribe now

Add new comment