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Investor confidence index falls just under one point to 103.9 in February, European worries over Greece stabilize

Tuesday, February 23, 2010
Opalesque Industry Updates - State Street Global Markets, the investment research and trading arm of State Street Corporation released the results of the State Street Investor Confidence Index® for February 2010.

Globally, Investor Confidence fell slightly 0.7 points to 103.9 from January's revised reading of 104.6. As with last month, the mood was upbeat in North America, where confidence increased by 3.3 points from a revised level of 108.0 in January to reach 111.3. Confidence was also slightly up in Europe, rising 2.1 points from January's revised reading of 99.0 to settle at 101.1. In Asia, by contrast, investors were more hesitant and confidence fell back to 97.0 from 98.1 in January.

Developed through State Street Global Markets’ research partnership, State Street Associates, by Harvard University professor Ken Froot and State Street Associates Paul O’Connell, the State Street Investor Confidence Index measures investor confidence on a quantitative basis by analyzing the actual buying and selling patterns of institutional investors. It is not a survey, but rather fact-based. The index is based on a financial theory that assigns precise meaning to changes in investor risk appetite. The more of their portfolio that institutional investors are willing to devote to equities, the greater their risk appetite or confidence.

“Institutional investors continued to balance a number of competing factors against one another in making their risk allocations this month," commented Froot. “Developments in Europe occupied much of their attention, as concerns around the long-term solvency of peripheral economies continued to grow. Although the most recent increase in the discount rate by the US Federal Reserve took place after the data for this month's ICI was collected, institutional investors appear to have anticipated the change, and what it implies for relative investment prospects across the Atlantic."

"In the early part of the month, investor sentiment appeared to overreact somewhat to developments in Greece," added O'Connell. "However, by month's end, institutional investors were approaching the European solvency issues in a more nuanced way. This, coupled with relatively good numbers on the US macroeconomic and earnings front, led North American investors to increase their allocations to risky assets overall. While Asian confidence fell back slightly, it remains close to the level it attained in September 2008, and as such does not represent an unduly pessimistic outlook."

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