The Investor Confidence Index (ICI) rose very slightly to 107.6 in July, up 0.8 points from June’s revised reading of 106.8.
The increase was largely driven by an increase in risk appetite among Asian investors and to a lesser extent in Europe, with North American investors showing a less positive view to the market.
“This month, North American investors are more concerned with rapid run-ups in stocks and interest rates,” index co-developer and Harvard University professor Kenneth Froot said.
“Investors are back to a more realistic concern that, distortion or not, higher nominal and real rates translate into less credit extension, less leverage and slower growth.
“This has been underscored by the results of the earning season, which have been mixed. It’s also a reminder that the previously high rates of forecasted earnings growth are, at this point, in the unlikely positive tail.”
Mr Froot said last month’s risk-on view was that the interest rate increase didn’t signify higher inflation or growth – it was just a rate distortion caused by the US Federal Reserve’s QEIII.
However, over July, North America’s confidence declined from 114 to 113.7 despite a record high result in April.
Asian risk appetite jumped from 89.3 to 100.8 over July and in Europe, confidence rose from 98.2 to 105.7.
“The more decisive part of this month’s story is what is happening with European and Asian investors,” State Street Associates’ Paul O’Connell said.
“There we see there is light at the end of the tunnel of adjustment to slower Chinese, Japanese, and European growth.
“They seem to be saying that, in spite of higher interest rates globally, the developed countries’ monetary authorities are most likely to act to reduce the risk of economic growth, responding with flexibility and stimulus on the downside and using the opportunity for faster growth to tighten and slim their balance sheets.
“As a result, the range of real economic growth outcomes is actually more limited than it has been in a long time,” he added.
