Investors ‘unconvinced’ about H2 outlook

Oksana Patron

13 July 2023

Long-term investors were reducing their exposure to risky assets as of June, making a defensive pattern that started in February one of the longest observed since the global financial crisis (GFC).

The State Street Risk Appetite Index found that investors remained unconvinced about second half outlook, despite a rebound in equity markets, the calming of the banking crisis and the passage of the debt ceiling and the Fed’s pause.

“Uncertainties surrounding stubborn inflation and stop-go nature of central bank tightening cycles have left investors wary of bonds, while recession risk continues to hang-over investor holdings of cyclical assets,” State Street said in the report.

“Curiously, investors appear ready for recession, but not for equity market weakness or indeed bond market strength.

“In short, bond markets seem better prepared for any shocks in H2 than equities.”

The Risk Appetite Index, which is derived from measuring investor flows in 22 different dimensions of risk across equities, FX, fixed income, commodity-linked assets and asset allocation trends, aims to capture the proportion of the risk elements that saw either risk seeking or risk reducing behavior.