Investors Shifted to Risk Assets in September

Institutional investors increased their exposure to risk assets in September, according to October’s State Street Institutional Investor Risk Appetite index.

However, State Street strategists cautioned that this shift back to risks comes with challenges, particularly due to uncertainties surrounding the outcome of the US election and ongoing political risks.

Dwyfor Evans, head of macro strategy for the APAC region at State Street Global Markets, said:  “Like August before it, September ended with investors moving back into risk assets.”

“Think of it as a September smile: a strong start to the month for risk-taking, followed by a more defensive mid-month, and then a sharp recovery in sentiment towards month-end coincident to policy easing and economic stimulus from the Federal Reserve and the Chinese authorities.”

He added that the mix of caution and occasional optimism during the month resulted in only modest adjustments in asset class exposure as equity allocations remained unchanged while bond allocations were only modestly higher.

Stock holdings also remained unchanged for the month, despite an uptick in equity allocations towards the end of September. However, they continue to stay above the long-term average.

One notable trend over the month was that investors continued their exit from cash, with cash holdings falling to their lowest level since the beginning of August.

As investors withdrew from cash, they shifted into equities. This movement was driven by lower interest rates and policy stimulus, which helped to ease recession concerns.