“Equity markets may have made new highs, but long-term investors are getting more cautious,” commented Michael Metcalfe, head of macro strategy at State Street Global Markets in a press release on 9 July 2024. Photos: Shutterstock; State Street. Montage: Maison Moderne

“Equity markets may have made new highs, but long-term investors are getting more cautious,” commented Michael Metcalfe, head of macro strategy at State Street Global Markets in a press release on 9 July 2024. Photos: Shutterstock; State Street. Montage: Maison Moderne

State Street’s risk appetite index retreated to -0.09 in June 2024, reflecting a “modest risk aversity” amongst institutional investors.

State Street Global Markets on 9 July 2024 released its institutional investor indicators--which include the  and the --for the month of June.

Its risk appetite indicator, which measures investor flows across equities, FX, fixed income, commodity-linked assets, and asset allocation trends, dropped into negative territory. This suggests that on balance, institutional investors were reducing their risk exposure.

“Equity markets may have made new highs, but long-term investors are getting more cautious,” commented Michael Metcalfe, head of macro strategy at State Street Global Markets, in a press release. “After the recent moderate improvement in risk appetites in Q2, institutional investors rushed back to cash in June as a combination of positioning, political risk and cyclical doubts challenged views in both equity and bond markets.”

“Foreign demand for French equities slumped to their lowest level since the pandemic in June as investors reacted to political uncertainty,” he added. “While the second round of parliamentary elections in the end delivered a hung parliament, it will be interesting to observe whether this demand returns in July and August. For now. investor confidence has clearly been rattled.”

Rise in allocations to cash

Long-term investor allocations to equities fell 42bps to 53.2%, State Street noted in its press release, while. allocations to fixed income fell a similar amount (46bps) to 27.5%. Cash holdings, on the other hand, rose 88bps to 19.3%.

This marked the largest rise in cash holdings since August 2023. “Just a month ago we speculated whether long-term investors would tolerate their cash holdings falling below their long-term average given ongoing event risk. June provided a definitive answer to this. The near 1% rise in allocations to cash was the largest in ten months and came at the equal expense of equities and bond holdings,” said Metcalfe.

Published every month, State Street Global Markets’ 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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