Investor Confidence Index up three points

Despite the Investor Confidence Index rising to 73.0 points in February, financial analysts still warn that the US economy is set for recession.

The State Street Global Investor Confidence Index rose by 3.5 points from a revised January level of 69.5 to reach 73.0.

Harvard University professor and creator of the index Ken Froot said the small jump in investor confidence took place against the backdrop of a decline in market volatility from the very high levels witnessed earlier this year and reflected the understanding that, “while many risks remain, the extreme risk aversion displayed by institutions in late 2007 was perhaps overdone”, Froot said.

“Looking across the data, we continue to see a fair degree of restraint amongst institutional investors, but this is balanced against a willingness to take on select risks.”

According to State Streets’ Michael Metcalfe, improving investor confidence does not mean that a turnaround in fundamental news is around the corner, and he believes the US economy is still likely to undergo a recession.

“We should stress that the Investor Confidence Index is not signalling a wholehearted return to risk. The level of the global index is still historically low and, as we noted above, the improvement in confidence has thus far only been seen in the US,” Metcalfe said.

“What it does suggest, however, in contrast to measures of consumer confidence and some measures of business confidence, is that institutional investors got gloomy early and are now beginning to look beyond the rapidly deteriorating fundamental picture.”