“The move back into risk is not without challenges, notably the outcome of the US election and ongoing geopolitical risks, but this notion that policy easing has diminished recession risks is best highlighted by cyclical relative to defensive equity sector flows,” said Dwyfor Evans, head of macro strategy for the APAC region at State Street Global Markets. Photo: Shutterstock

“The move back into risk is not without challenges, notably the outcome of the US election and ongoing geopolitical risks, but this notion that policy easing has diminished recession risks is best highlighted by cyclical relative to defensive equity sector flows,” said Dwyfor Evans, head of macro strategy for the APAC region at State Street Global Markets. Photo: Shutterstock

The State Street risk appetite index increased to 0.27 in September 2024. The month started with strong investor appetite for risk-taking, followed by a more defensive period and ended with a “sharp recovery” thanks to policy easing and economic stimulus. “Think of it as a September smile,” said State Street.

State Street Global Markets on 11 October 2024 released its institutional investor indicators--which include the  and the --for the month of September.

Its risk appetite indicator, which measures investor flows across equities, FX, fixed income, commodity-linked assets, and asset allocation trends, increased from 0.09 to 0.27. “Like August before it, September ended with investors moving back into risk assets. Think of it as a September smile: a strong start to the month for risk-taking, followed by a more defensive mid-month, and then a sharp recovery in sentiment towards month-end coincident to policy easing and economic stimulus from the Federal Reserve and the Chinese authorities,” commented Dwyfor Evans, head of macro strategy for the APAC region at State Street Global Markets, in a press release.

“The move back into risk is not without challenges, notably the outcome of the US election and ongoing geopolitical risks, but this notion that policy easing has diminished recession risks is best highlighted by cyclical relative to defensive equity sector flows, which recovered in September to levels last seen in Q1 2023,” added Evans. “The impact of China’s extensive policy stimulus is still playing out, but cross-border equity flows into Chinese stocks rose to the top quintile in the immediate aftermath of the stimulus announcement. Meanwhile, expectations on further Bank of Japan rate tightening saw a sharp reversal in JPY flows with investors sitting on a top quartile overweight. This has cascaded more broadly in the region: all Asian emerging currencies bar the CNY sit on top quartile positioning levels, an indication of bullish bets on regional FX on expectations of further Fed easing and a softer USD.”

Cash holdings fall

Institutional investors’ allocations to equities remained unchanged during September, allocations to bonds increased a bit and investors continued their exit from cash, said State Street, with cash holdings falling to their lowest levels since early August. “The most notable trend towards the end of the month is a shift from cash and into equities, ostensibly as lower interest rates and policy stimulus moderate recession risks,” noted Evans.

Institutional investors’ stock holdings remained above their long-term average.

Released every month, State Street’s institutional investor indicators measure risk appetite quantitatively by analysing the buying and selling patterns of institutional investors. The risk appetite index is calculated by measuring investor flows across equities, FX, fixed income, commodity-linked assets and asset allocation trends, while the holdings indicator looks at how investor portfolios are allocated toward equity, fixed income and cash.

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