Institutional investor confidence, as measured by actual global flows into growth assets, ended the year on a high note, according to the latest report from State Street Global Markets.

The State Street Investor Confidence Index for December, published December 28, showed that globally confidence increased by 8.0 points to a reading of 104.4, led by a rise of 7.7 points in North America to 103.1, but dragged back by continued nervousness in Europe. Asia, as expected, also demonstrated greater optimism.

Unlike survey-based confidence indicators, the index measures confidence on a quantitative basis through analysis of buying and selling patterns of institutional investors. The greater the allocation to equities, the higher the risk appetite or confidence level. A reading of 100 is neutral – where investors are neither increasing nor decreasing their equities exposures.

The index was developed by Harvard University professor Kenneth Froot and Paul O’Connell of State Street’s specialist think tank, State Street Associates.

Froot said last week that confidence among institutional investors had continued its late-year improvement.

“Clearly, the scenario for moderated world growth with recovery in the US has increasingly gained traction,” he said.

But Europe remains a big concern at the start of the new year. The index shows a fall of 10.8 points to a reading of 99 in Europe.

O’Connell said: “The strong decline of European investors’ confidence shows that the regions’ investors remain quite jittery in the face of intra-European turmoil. We went quickly from a regime of concern around the euro and the liquidity of some of the smaller countries’ debts to a regime where those concerns were ignored. And now we have come full circle: European investors are back again worrying that high sovereign indebtedness may prove destabilising for the region.”

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