Investor confidence globally fell from 94.5 to 92.4 over the month of January, according to the State Street Investor Confidence Index.

Sentiment in Europe declined 10.1 points from the revised December level of 101.7, as European institutional investors reallocated away from core equity positions, while institutional investors in North America are currently the most risk averse, as investor confidence declined from 89.9 to 89.8. In Asia investors added to their equity holding and sentiment increased from 93.6 to 96.9.

“Seasonal effects arising from the end-of-year holiday period contributed to larger-than-normal revisions to last month’s numbers, muddying the picture of investor risk appetite a bit,” commented co-developer of the index and Harvard University professor Kenneth Froot. “What is clear from the latest data is that institutional investors in both North America and Europe display increased caution as we embark on 2012, maintaining equity positions that can best be described as defensive.”

Co-developer Paul O'Connell of State Street Associates added: “Notwithstanding this most recent rally in January, world equity prices remain about 10 percent below their April 2011 short-term high.

“It is clear from the significant decline in the European ICI that questions about the resolution of the European sovereign debt crisis remain uppermost in investors’ minds. A look at the underlying data reveals that investors did commit some new funds to emerging markets equities in January. It remains to be seen whether these flows will translate into wider commitments across more markets as we go through the quarter.”

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