POWERED BY MOMENTUM MEDIA
Instos temper risk-seeking activity in February
Following a strong risk appetite in January, institutional investors have pulled back in February, with risk-seeking activity dropping to zero amid a decline in equity allocations.
The State Street Risk Appetite Index fell back to 0 in February, down from 0.36 in the month prior.
This marked an “abrupt end” to four back-to-back months of risk-seeking activity, State Street noted.
Long-term investor allocations to equities sharply declined from close to their highest level in 16.5 years in January.
State Street identified cash holdings, which rose by nearly 0.5 per cent, as the main beneficiary of the move away from equities in February. Meanwhile, fixed income holdings were flat during the month.
“Investors’ four month run of risk seeking activity decisively broke in February, as incoming US economic data raised concerns that growth has abruptly stalled, offsetting hopes of more stimulus from China,” commented Michael Metcalfe, head of macro strategy at State Street Global Markets.
However, how and where investor sentiment changed was potentially even more telling than the headline change in sentiment itself, Metcalfe argued.
“For some months now investors’ holdings in equities relative to fixed income have been exceptionally stretched. But once again in February, when investor holdings of equities did fall, the primary beneficiary were allocations to cash not fixed income. So while investors are keen to de-risk and move their aggregate equity holdings closer to average benchmark levels, they remain hesitant on fixed income,” the head of macro strategy said.
With investor holdings remaining concentrated in equities and foreign exchange markets, Metcalfe added it was unsurprising that February’s move back to benchmark exhibited significant regional variations.
Investor holdings of US equities and technology stocks bore the brunt of the correction, with both sectors experiencing notable reductions in investors’ overweight positions.
As a result, European equities majorly benefited from flows exiting out of US equities, meaning long-term investors have completely unwound their underweight position in the region’s equity markets.
Metcalfe continued: “For now sentiment toward emerging markets by contrast did improve, but like fixed income allocations, remains a little more circumspect. One exception here is Chinese equities which have continued to receive inflows such that long-term investors by our metrics have now eliminated their underweight position.”
AUTHOR
Jasmine Siljic
Jasmine Siljic is a journalist at Super Review. Prior to joining SR, she also worked across other Momentum Media brands as an intern and cadet journalist. She recently completed a Bachelor of Media and Communications at Macquarie University.
Recommended for you
Equity markets have surged ahead of fundamentals as institutional investors fall behind, according to Ten Cap Alpha Plus.
Local investors are leading the region in plans to boost private market exposure, as demand grows for innovative fund structures, resilient investments, and a more selective approach to alternatives.
Research shows institutional investors are increasingly turning to private credit, but the APAC region’s relatively small market size remains a key constraint.
The global financial platform has completed a Series F funding round, with superannuation funds participating in the round.
TOP PERFORMING FUNDS
ACS FIXED INT - AUSTRALIA/GLOBAL BOND
Fund name
3y(%)pa
1
DomaCom DFS Mortgage
94.67 3 y p.a(%)
2
L1 Capital International
72.79 3 y p.a(%)
3
Global X 21Shares Bitcoin ETF
53.24 3 y p.a(%)
4
Global X GlobalX FANG+ ETF
43.15 3 y p.a(%)
5
DomaCom 4/27 Crombie Avenue Bundall QLD 4217 Australia
36.22 3 y p.a(%)
