By the end of November, holdings of US equities relative to the rest of the world were close to the most stretched in the 26-year history of State Street Global Markets’ data.
From the point of view of long-term investor holdings, the US has “rarely been so exceptional”, says Metcalfe. “In APAC, Japan remains the only area where investors are neutrally positioned, with significant underweights in emerging markets in particular.”
Meanwhile, long-term investor positioning in sovereign fixed income markets has been less optimistic. Demand for French sovereign bonds slumped to a six-month low in November, ahead of the subsequent collapse of the French government.
“For now, in a telling sign of the lack of contagion, investors remain overweight other high-debt countries in the Euro area, such as Italy,” says Metcalfe.
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Risk-seeking continues
According to the results of the latest State Street Institutional Investor Indicators, which measure investor confidence or risk appetite, the State Street Risk Appetite Index rose to 0.27 in November, the fourth consecutive month of risk-seeking activity.
Meanwhile, the State Street Holdings Indicators showed that long-term investor allocations to equities rose by a full percentage point to 53.8%, the highest level in sixteen-and-a-half years. This was funded by a 20-basis point (bp) fall in allocations to cash and a larger 80 bps fall in holdings of fixed income securities.
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The Institutional Investor Indicators analyse the actual buying and selling patterns of institutional investors derived from State Street’s US$4.7 trillion in assets under custody and administration.
The Risk Appetite Index is derived from measuring investor flows in 22 different “dimensions of risk” across equities, FX, fixed income, commodity-linked assets and asset allocation trends. It captures the proportion of the 22 risk elements that saw either risk-seeking or risk-reducing behavior. A positive reading suggests that on balance investors are adding to their risk exposures, while a negative reading suggests risk reduction.
The State Street Holdings Indicators capture the share of investor portfolios allocated toward equity, fixed income and cash, going back to 1998.
Charts: State Street Global Markets
