GLOBAL - The investor confidence index, a key economic indicator for asset owners and investment managers, declined marginally in May as a result of institutional investors gradually cutting the risk in their portfolios, early in 2004.
Developed by Harvard University professor Ken Froot and Paul O’Connell of State Street Associates, the index shows that institutional investor confidence dipped by 0.6 points from April’s revised reading of 92.0.
The index has been essentially flat at 91.4 for the past two months, having declined from its recent high of 109.0 in December 2003.
“Professional investors made substantial downward adjustments in the risk of their portfolios in the first few months of 2004, but are now clearly in a holding pattern awaiting fresh news. By cutting risk, they prepared their portfolios for possible early increases in rates by the Fed,” said O’Connell.
Froot added: “In the fourth and fifth months, professional investors rested. Right now it’s a war of attrition, with recent positive earnings surprises battling against Asian overheating, prospective US Fed rate increases, and soaring commodity prices.
“Professional investors know the risks, and their prior efforts to take risk off the table anticipated this struggle.”
State Street Associates is the research and development division of State Street Global Markets.
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