Institutional investors remained mostly neutral last month as they awaited US economic data – but still steered clear of fixed income, according to State Street.
The latest State Street Markets’ Institutional Investor Indicators found that investors stayed largely neutral during November in part due to the continued US government shutdown, which made them reluctant to make major moves.
The 42-day shutdown lasted from 1 October to 12 November and became the longest in US history, delaying the release of key economic data, including jobs figures.
As a result, State Street’s institutional investor risk index showed risk appetite fell 0.09 in the month after a year of largely resilient sentiment that peaked in July.
It comes after the index dropped to neutral in October as investors favoured defensive stocks, boosting equity holdings to 55 per cent – the highest since the Global Financial Crisis.
Commenting on November’s risk index, State Street senior macro strategist Noel Dixon directly linked the uncertainty from the government shutdown to a drop in market conviction.
“Consequently, investors hesitated to implement significant portfolio adjustments as they await clearer economic data,” Dixon said.
State Street Holdings indicators also showed that long-term investor allocations to equities slightly decreased by 1 basis point during the month. Despite this, Dixon noted that equities remain the preferred asset class, with institutional investors maintaining heavy exposure to US technology stocks.
In addition, Dixon explained that some investors have started to diversify their portfolios beyond the US, looking in particular to European and Chinese stocks.
Investor sentiment on European equities for 2026 is mixed so far, with Amundi Asset Management eyeing opportunities to manage risk and capture gains, while BlackRock has pointed to structural challenges that continue to prevent the region from outperforming US markets.
For Chinese equities, some asset managers such as UBS have identified the country as a major bright spot heading into next year. In particular, its 2026 outlook highlighted China’s tech sector, contending that strong liquidity, retail flows and expected 37 per cent earnings growth in 2026 should help sustain momentum for equities in the country.
At the same time, Dixon pointed out that country-level diversification remains uneven, with allocations to broader emerging market equities staying “relatively low” despite recent attention this year amid a weaker greenback.
Meanwhile, State Street also reported slight increases in cash and fixed income holdings – up 0.006 and 0.003 respectively – but Dixon still described the data as reflecting a general avoidance of fixed income.
“Despite uncertainty in recent US economic data due to the government shutdown, US treasuries did not see significant inflows,” he said.
By contrast, in the Asia-Pacific region, Australian fixed income saw the strongest inflows within the asset class, driven primarily by local investors.
LGT Wealth Management hailed a “renaissance” for domestic fixed income last month, arguing that Australia is better positioned than other economies, including the US, for stronger performance in the asset class in the coming quarters.
At the time, it noted that even though Australia’s Q3 inflation exceeded the Reserve Bank of Australia’s (RBA) forecasts, underlying trends were still positive.
On the other hand, Singapore fixed income experienced the largest outflows throughout the month.
