A distinguishing feature of the State Street index is that it doesn't rely on what investors say to pollsters, but on what they do in the market.

A State Street barometer of how investors around the world actually think about markets by tracking their behavior showed that their optimism increased in January, after having previously been hit by Omicron and worries about geopolitics.

The Global Investor Confidence Index, issued by State Street Global Markets, increased to 89.3, up 4.5 points from December’s revised reading of 84.8. The rise was led by a rebound in the European ICI, which bounced back a significant 18.2 points from December’s low to 85.3. The Asian ICI rose slightly, up 1.7 points to 97.1, but was offset by a 1.4 point decline in the North American ICI to 93.6.

“Investors continued to shy away from risk assets in January as the global ICI continued to hover close to its weakest reading in over a year,” Rajeev Bhargava, head of Investor Behavior Research, State Street Associates, said. “Sentiment within the US remained subdued as an increasingly hawkish stance from the Fed, rising COVID infection rates locally due to the Omicron variant, and a disappointing start to [the] earning season likely led to a continued reassessment of allocations away from higher beta assets.” 

“On a more positive tone, investor confidence across Europe recovered a bit as the regional ICI rose 18 points from December’s reading. Absolute levels, however, still remain consistent with risk averse behavior, so it will be important to see if momentum continues to build,” Bhargava said. 

The index measures investor confidence or risk appetite quantitatively by analyzing the actual buying and selling patterns of institutional investors. The index assigns a precise meaning to changes in investor risk appetite: the greater the percentage allocation to equities, the higher risk appetite or confidence. A reading of 100 is neutral; it is the level at which investors are neither increasing nor decreasing their long-term allocations to risky assets. The index was built by State Street Associates, State Street Global Markets’ research and advisory services business, in partnership with FDO Partners.