State Street Global Markets has released the October results for its Institutional Investor Indicators, showing a slight decrease in investor risk appetite and shifts in asset allocations. The State Street Risk Appetite Index remained in positive territory at 0.18, just below the 0.27 reading in September, indicating a sustained but slightly tempered appetite for risk among institutional investors.
According to the State Street Holdings Indicators, long-term allocations to equities decreased by 39 basis points to 52.7%, while cash allocations rose by a similar margin to 19.2%, leaving fixed-income holdings relatively stable. Michael Metcalfe, head of macro strategy at State Street Global Markets, noted that despite the slight dip in equity holdings, “long-term investors went into November with their largest allocation to equities ahead of an election in two decades.” This positioning, he added, put them in a strong position for the initial positive market response to the U.S. election results.
Institutional investors shift back to neutral, State Street index shows
Within equities, Metcalfe highlighted that investors remain overweight in US equities compared to European and emerging market equities. This allocation strategy could help mitigate potential downsides if US tariffs are implemented. Meanwhile, investor demand for long-dated US Treasuries saw a sharp decline in October, dropping to a four-year low, amid rising concerns about fiscal sustainability. Metcalfe remarked that “demand for long-dated Treasuries suffered a serious wobble in October,” noting the importance of monitoring this trend as fiscal concerns grow heading into 2025.
In the UK, long-term investor flows into Gilts were positive through much of October, placing many investors on the wrong side of the spike in yields following the UK budget announcement. “Watching how long-term investor demand for Gilts evolves in the coming months… will be crucial to judge whether the question of fiscal sustainability escalates further,” Metcalfe added, highlighting the significance of investor response to fiscal policy shifts.
Metcalfe also noted that foreign demand for Chinese equities hit a three-year high in mid-October but has since begun to decline as investors weigh potential US tariffs against further Chinese stimulus. Meanwhile, investors have held only a modest overweight in the US dollar, which could leave room for currency movement in response to post-election economic shifts.
