The Investor Confidence Index developed by State Street Global Exchange and Harvard professor Kenneth Froot, measures investor confidence by analysing the actual buying and selling trends of institutional investors.
According to State Street, a greater percentage allocation to equities increases the index, while a reduction in long-term allocations to risky assets decreases it.
The increase in the index over January was the greatest in the past four years, according to State Street Global Exchange, and was mainly due to the rapid rise in North American sentiment from 92.1 to 113.6.
The increase in European sentiment from 107.5 to 112.6 also helped to improved global investor confidence, along with the increase in Asian sentiment from 97.7 in December to 103.5 this month.
This is the second month in a row that the index has improved, after experiencing declines in both October and November.
State Street Global Exchange senior managing director and head of research and advisory services Jessica Donohue said she believes the reduction in US policy uncertainty and optimism towards the Federal Reserve’s policy of forward guidance may help “anchor low interest rates going forward”.
“It will be critical to see how sentiment holds up during the ceiling debate, given the renewed concerns over emerging market growth,” she said.
Ms Donohue said the increase in European sentiment was the result of stronger economic fundamentals and looser monetary policy.
“Easier financing conditions for peripheral European sovereigns and speculation for more unconventional measures by the ECB, given below target inflation, have led to broader optimism among institutional investors,” she said.
