State Street: Institutional investor equity holdings slip to 29-month low

State Street: Institutional investor equity holdings slip to 29-month low

November 8, 2023

Equity
Aandelenkoersen

State Street Global Markets released the results of the State Street Institutional Investor Indicators for October. The State Street Risk Appetite index fell to -0.55 from -0.18, showing that, on balance, long-term investors further reduced risk across asset classes in October.

Michael Metcalfe, Head of Macro Strategy at State Street Global Markets, says:

'Investor behaviour was unequivocally risk averse in October. Investors were already defensive before the outbreak of war in the Middle East but have become more so since.

We observed risk reducing flows across equity, bond, FX and commodities in each week of the month. Of the twenty-two-factors that make up our Risk Appetite Index, a net balance of minus 12 (or 55%) showed investors reducing their risk exposures. This matches the low for risk appetite seen so far this year.

Against this apparent investor gloom throughout October, November has begun more positively for equity markets. But we worry that markets risk making a similar mistake to earlier in the year by becoming overly hopeful on the prospects for interest rate cuts against what is still a difficult macro and geopolitical backdrop.' 

The State Street Holdings indicators showed that long-term investors allocations to cash rose a further eight-tenths of a percent to 21.1%, fixed income allocations fell 0.2% to 28.3% and equity holdings fell by an even larger by 0.6% to 50.5%.

Michael Metcalfe adds:

'Cash holdings have now risen more than 6% since their low in March 2022, including a near 1% rise in October. Although cash holdings are now unusually high, they remain significantly below prior crises peaks seen during the pandemic, the Great Financial Crisis and the Dot.com bust. Equity holdings in particular still look vulnerable to a further leakage to cash as they remain above their historical average even if they are at 29-month low.'

 

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