“Institutional investor risk appetite moderated in April led by a surge in demand for the US dollar, with inflows close to a five-year high over the month,” commented Michael Metcalfe, head of macro strategy at State Street Global Markets. “Risk appetite in equities was more mixed, with weaker demand for high beta stocks, including tech, offset by firmer demand for emerging markets.” Photos: Shutterstock; State Street. Montage: Maison Moderne

“Institutional investor risk appetite moderated in April led by a surge in demand for the US dollar, with inflows close to a five-year high over the month,” commented Michael Metcalfe, head of macro strategy at State Street Global Markets. “Risk appetite in equities was more mixed, with weaker demand for high beta stocks, including tech, offset by firmer demand for emerging markets.” Photos: Shutterstock; State Street. Montage: Maison Moderne

State Street’s risk appetite index decreased to 0.0 in April, reflecting a retreat in risk bias back towards neutral. Risk appetite amongst institutional investors in equities was more mixed, added the firm, while allocations to fixed-income increased.

State Street Global Markets on Friday 10 May released its institutional investor indicators--which include the  and the --for the month of April.

Its risk appetite indicator, which measures investor flows across equities, FX, fixed income, commodity-linked assets, and asset allocation trends, dropped from 0.09 in March to 0.0 in April, reflecting a “a modest retreat in risk bias” back towards neutral.

“Institutional investor risk appetite moderated in April led by a surge in demand for the US dollar, with inflows close to a five-year high over the month. The flip side of this is that institutional investor flows and holdings of the euro remain unusually low,” commented Michael Metcalfe, head of macro strategy at State Street Global Markets, in a press release. “With an ECB [European Central Bank] cut now fully discounted in June and expectations of US rate cuts close to eliminated, investors must already be positioned for most of the potential negative news in EURUSD.”

Cash holdings back to average, fixed-income allocations up

State Street’s holdings indicators showed that long-term investor allocations to equities fell 0.2 percentage points to 53.3% in April 2024, while allocations to cash fell 0.2 percentage points to 18.7%. Fixed-income holdings were the “prime beneficiary,” with allocations up 0.4 percentage points to 27.9%. It’s the “biggest monthly rise in fixed income allocations since March 2023,” noted the firm.

“Risk appetite in equities was more mixed, with weaker demand for high beta stocks, including tech, offset by firmer demand for emerging markets,” commented Metcalfe. “Even though investors returned to fixed income as a whole in April, demand was concentrated in treasuries, with little appetite for riskier emerging market debt or high yielding corporate credit.”

Cash holdings returned to their long-term average, said State Street.

“April was a frightful month for bond and equity market returns, but the reaction of institutional investors was telling,” added Metcalfe. “Rather than hide out in cash, they increased their allocation to fixed income by the most in more than a year. A prescient move given the high, not higher, for longer message on rates from the Fed at the beginning of May and continued hopes for ECB easing in June. It is early days but this could be the beginning of investors re-assessing their still significant underweight in bonds, especially in German bunds.”

Published every month, State Street’s institutional investor indicators analyse the buying and selling patterns of institutional investors. The holdings indicator shows the aggregate holdings of investors across stocks, bonds and cash, with changes in this indicator due to “changes in the relative valuations of asset classes or investor flows (trades) that reallocate portfolios across asset classes.”

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