Institutional investors sharply increased risk exposure in April, reversing the pullback seen at the onset of the Iran war, according to the latest State Street institutional investor indicators.
The State Street Risk Appetite Index surged over the month, signalling strong demand for riskier assets across all major asset classes as economic and earnings expectations remained resilient despite continued hostilities and elevated oil prices.
Analysis of flows derived from State Street’s US$54.5 trillion ($75.2 trillion) in assets under custody and/or administration showed investors reallocating capital back into equities, with the move largely funded from cash holdings.
Allocations to equities rose by 2.1 percentage points, more than reversing March’s decline and marking one of the largest monthly increases recorded since the index began in 1998, underscoring the speed of the shift back into risk.
Marija Veitmane, head of equity research at State Street Markets, said: “The initial de-risking by institutional investors at the onset of the Iran war has proven short-lived.”
She added that despite ongoing hostilities and still-elevated oil prices, markets are now pricing in a limited duration for the conflict, with volatility already returning to pre-war levels.
“At the same time, economic and earnings expectations remain resilient, allowing investors to rebuild risk positions,” Veitmane said.
Within equities, stronger earnings dynamics continued to underpin risk-taking, with investors responding quickly to sector-level upgrades.
“Somewhat counterintuitively, 2026 earnings expectations have risen since the war began, driven by upgrades in Energy (higher oil prices) and IT (persistent AI demand),” she said.
Investors have moved rapidly to capture those trends, particularly in IT, where earnings visibility remains strong, contributing to a sharp lift in overall equity allocations.
“Regionally, this has translated into flows into US equities, funded from broad-based reduction in positions in the rest of the world,” Veitmane said.
She noted that European equities experienced the heaviest selling as investors reassessed profit resilience under higher oil price conditions, while Asian technology-heavy markets stood out.
“The exception is Asian tech rich indices —Korea and Taiwan—which continue to attract strong demand,” she said.
In currency markets, positioning also shifted notably over the month as investors rotated away from defensive assets.
“In the FX market the USD was the preferred safe haven choice in March,” Veitmane said.
However, that positioning unwound quickly in April, with investors rotating into higher-beta emerging market and commodity currencies while also rebuilding carry trades.
“Similarly, we are seeing improving demand for emerging market bonds as well as high yield credit,” she said.
