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Global investors’ appetite for risk rebounds in June

But IMF predicts $12trn-plus hit to global economy and slashes output forecast


Elena Johansson

Global investor confidence increased to 94.3 points in June, jumping 21 points from May’s reading of 73.3, according to State Street.

A reading of 100 is neutral, the US asset manager explained – at this level, investors are neither increasing nor decreasing their long-term allocations to risky assets.

State Street’s Investor Confidence Index (ICI) showed the Asian ICI spearheading other regions, rising  19.5 points to 100. It was followed by the North American ICI which climbed 18.4 points to 86.2, while the European ICI rose to 119.7 points from 108.6.

The index measures investor confidence quantitatively by assessing the changes in investor holdings of risky assets.

Rajeev Bhargava, head of investor behaviour research at State Street Associates, commented: “Risk appetite saw a strong rebound in June. Unprecedented action by central banks combined with the reopening of major economies around the globe likely drove a more optimistic tone of investors.

“However, it will be important to see whether the positive momentum in sentiment endures, as signs of a second wave in Covid infections drive volatility in asset markets.”

IMF outlook

The latest State Street ICIs emerged as the International Monetary Fund (IMF) revised its global output projections 1.9 percentage points lower compared with its April forecast, resulting in a fall of 4.9% in 2020.

The IMF also predicted in its latest World Economic Growth Outlook that the global economy would take a hit of more than $12trn (€10.69trn) from the crisis over the two years of 2020 and 2021.

In its global financial stability update from June, the IMF said central bank measures had boosted market sentiment and investor optimism about a speedy recovery. It went on to note, however, a disconnect between financial market optimism and the evolution of the real economy.

“The bullish mood among investors is predicated on strong policy support amid huge uncertainties about the extent and speed of the economic recovery,” it warned.

“High levels of debt may become unmanageable for some borrowers, and the losses resulting from insolvencies could test bank resilience in some countries.”