Insto investors do 180 on sentiment

Mike Taylor

Managing Editor and Publisher

11 June 2025

It was before the latest negative news around the LA riots, but by the end of may institutional investor sentiment had recovered from the US Trump administration’s tariffs foray to levels not seen since the first week of April.

The State Street Institutional Investor Indicators released this week suggested that investors, initially rattled by the tariffs approach had, in fact, turned full circle by the end of May.

The State Street Risk Appetite Index rose to 0.36 at the end of May, as investors moved back towards risk taking in the latter part of the months following deferral of the implementation of trade tariffs.

It said indicators showed that long-term investor allocations to equities rose again in May to level last seen on the cusp of the “Liberation Day” announcement in early April with exposure to equities rising by 0.9% relative to a 0.8% fall in bond holdings.

Commenting on the data, State Street Markets Head of APAC Macro Strategy, Dwyfor Evans aid the month of May saw risk sentiment by institutional investors rebound to its highest level since early February.

“While the narrative around trade tariffs remains ubiquitous, implementation delays allied to lower effective tariff rates than initially envisaged helped lift sentiment towards risk as did the (still) largely benign environment for inflation that undermines fears around stagflation,” he said.

“A centrepiece of stronger risk sentiment is a 0.9% monthly increase in equity exposure relative to a 0.8% fall in bond holdings. By end-May, this takes aggregate portfolio weights in equities back to levels last seen in the first week of April and represents a complete reversal of asset class preferences in the intervening period with cash holdings remained effectively unchanged over the course of the month.”

Evans said protectionism and trade tariffs likely exerted a greater impact on mercantilist Asian than anywhere in the global economy, particularly given the regional buildup of predominantly US dollar reserves.

“A weaker USD and higher US yields thus matter, as do tariffs. The strengthening of the TWD in early-May part reflects a policy towards regional currency appreciation to offset tariff threats. This prompted a stronger return of investor capital to the region, particularly in regional equities and currencies with the latter a mix of surplus exporters and higher yielding currencies.”