US investors’ risk aversion climbs as rate hike nears

Added 31st August 2016

The confidence of North American investors diminished by 10% between July and August, and this could be further hit by a Federal Reserve decision to raise rates, suggested Kenneth Froot of State Street Global Exchange.

US investors’ risk aversion climbs as rate hike nears

The North American Investor Confidence Index (ICI) from American investment house State Street, dipped from 99.8 to 89.5 in August, pushing the Global ICI further into the red over the period. The Global ICI, which registered at 98.0 in July, fell by 8.5% to 89.7, State Street reported.

State Street classifies a neutral reading of 100 as a position wherein an investor is neither increasing nor decreasing their long-term allocations to risky assets. Unlike some other survey-based indices, State Street claims to consider investor risk appetite quantitatively by studying actual buying and selling patterns of institutional investors. Therefore, the greater the percentage allocation to equities, the higher the risk appetite. 

Froot, one of the co-creators of the ICI, remarked that “an eventful summer along with a poorer than expected earnings season clearly took the wind out of US institutional investors’ sails.”

However, he said it was important to note that a potential rate hike in the US could change matters. "As the August ICI reading was taken before Janet Yellen’s speech at Jackson Hole, it remains to be seen whether her growing conviction on the case for a rate hike will mark a further round of risk aversion."

State Street’s data found that the confidence of European investors was also shaken in August, sending the European ICI toppling by 6.1% to 86.8 points.

Asia was the only major region whose collective investors registered as having an above neutral risk appetite in August, although, the index was 2 points lower at 106.1.

Timothy Graf, head of macro strategy EMEA at State Street said the ‘resilient sentiment’ in Asia might be a reflection of receding fears of a hard landing in China.

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