The State Street Risk Appetite Index fell to -0.09 in March, down from neutral, as institutional investors rotated out of risk assets, opting for a more cautious and defensive multi-asset stance.
The fund manager’s indicators showed long-term investor allocations to equities continued their reverse from the post-global financial crisis highs earlier in the year, with outflows from equities of 0.75 per cent offset by inflows into bonds and cash of 0.4 per cent and 0.35 per cent, respectively.
Dwyfor Evans, State Street Global Markets’ head of APAC macro strategy, explained that a key part of the rotation stemmed from policy uncertainty around trade and protectionism, pointing to the “dual-pronged” potential impact of both slower growth and higher inflation.
“The month of March saw progressive deterioration in risk appetite among institutional investors,” Evans said.
“Most notably around investor caution was a continued unwind in USD overweight positioning, which bucks the usual safe haven trend associated around risk aversion. Investor caution prompted a further retracement out of equities and into bonds and cash in approximately equal increments.”
This trend, the macro strategist said, infers expectations around growth slowdown are stronger than upside inflation surprises at this juncture.
“The impact of China’s policy stimulus continues to play out in the region, but as a predominantly mercantilist region, fears around trade protectionism run deep,” he said.
Evans noted that investors’ flows in Asia have been mixed, with tariff fears on China offset by optimism in tech and efforts to pivot trade, while equity inflows into China partly rotated from India and the yen gained on rate hike bets and safe-haven demand.
This comes after the State Street Risk Appetite Index fell back to 0 in February, down from 0.36 in the month prior, marking an “abrupt end” to four back-to-back months of risk-seeking activity.
