There is no question that the losses on stock markets at the moment are primarily the result of the Greek crisis. A downgrade of a euro zone country’s sovereign debt to junk is enough to make all but insane mainstream investors take a large step away from risk.
The latest State Street investor confidence index bears some scrutiny. The overall index dropped in February which would seem to be in line with other sentiment indicators such as The Conference Board’s consumer confidence index and the German Ifo on business thinking.
Good news and bad in the latest investor confidence sounding from State Street. The overall index took a dive again — third month in a row — and is now barely above neutral. That’s the bad news if you are keen to see risk assets do well.
Interesting change by State Street in its monthly sounding of its institutional investor clients. The firm has gone back over all its data and rebased it in order to get an indicator that not only marks up and down changes in investor confidence but also suggests what regime investors are in. Ken Froot, the Harvard professor who co-developed the index, describes the move thus:
Every month, the financial services company State Street studies the trillions of dollars in institutional investor money it looks after as custodian and tries to gauge where things stand. Over the years, it has come up with a map consisting of five different regimes, or moods, to reflect this. They range from the bullish “Liquidity Abounds” in which investors buy equities and focus on growth, to the uber-risk averse “Riot Point”.