State Street Global Markets on 8 November released their institutional investor indicators--which include the  and the --for the month of October.

“Investor behaviour was unequivocally risk averse in October,” said Michael Metcalfe, head of Macro Strategy at State Street Global Markets in a . “Investors were already defensive before the outbreak of war in the Middle East but have become more so since. We observed risk reducing flows across equity, bond, FX and commodities in each week of the month.”

State Street’s risk appetite index, which looks at investors’ aggregate buying and selling activity, dropped from -0.18 in September to -0.55 in October. October’s reading shows that on balance, long-term investors further reduced risk across asset classes, said the firm.

“Of the twenty-two-factors that make up our Risk Appetite Index, a net balance of minus 12 (or 55%) showed investors reducing their risk exposures,” noted Metcalfe.

Equity holdings at 29-month low

“Equity holdings in particular still look vulnerable to a further leakage to cash as they remain above their historical average even if they are at 29-month low,” added Metcalfe.

Cash holdings rose again in October, and although they are “unusually high,” they remain below crises peaks seen during the covid-19 pandemic, the Great Financial crisis and the dot.com bust, said State Street.

State Street’s monthly holdings indicator shows the aggregate holdings of institutional investors across stocks, bonds and cash, explains the firm. Changes in this indicator are due to “changes in the relative valuations of asset classes or investor flows (trades) that reallocate portfolios across asset classes.”