GLOBAL - Figures from State Street reveal investor confidence declined to 89.6 in August, down 12.9 from July after a volatile month led to the most substantial decline since October 2008.
Officials at State Street say market volatility shook investor confidence leading them away from risky assets. The August drop marks the steepest decline since the month Lehman Brothers collapsed.
The firm's monthly index found a significant decline among North American investors, with confidence decreasing to 88.6, down 13.9 points from July's revised level of 102.5.
The declines were less steep elsewhere with the European Index sliding 4.6 points to 90.5, down from July's reading of 95.1.
A marginal decline was recorded for Asian investors, with the reading there falling by 0.6 points from July's revised level of 95.8 to 95.2.
The State Street Investor Confidence Index was developed by Harvard University professor Kenneth Froot and Paul O'Connell of State Street Associates. It measures investor confidence or risk appetite quantitatively by analysing the actual buying and selling patterns of institutional investors; the greater the percentage allocation to equities, the higher risk appetite or confidence
A reading of 100 is neutral, marking the level at which investors are neither increasing nor decreasing their allocations to risky assets.
"Perhaps not surprisingly, the elevated level of volatility this month took its toll on investor sentiment," commented Froot. "Diminished growth expectations, the downgrade of the US sovereign debt rating, and continued difficulties around European sovereign financing, all combined to cause institutional investors to reduce their allocations to risky assets. The key question that investors are grappling with is whether elevated levels of stress in the financial system will have real effects on the economy."
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