State Street said its Global Investor Confidence Index in August fell to the lowest level in four months in another sign the US-China trade war is weighing on business and sentiment.
The financial services company said on Wednesday that sentiment among institutional investors declined for the third month in a row as uncertainty over monetary policy and trade tensions reduced risk appetite amid concerns over potential downside risks to the economy.
"This month's investor confidence index results reflect investors' growing concerns about the global economic slowdown and widespread declines in global manufacturing as the trade war between the world's two largest economies continues to escalate," said Kenneth Froot, a Harvard professor and founding partner at State Street Associates, the company's research arm. "Investors are expressing renewed risk aversion in the midst of heightened volatility in the financial markets and a renewed inversion of the treasury yield curve."
State Street said that its global index slipped to 75.9 in August, lower than July's reading of 84.6. That is the lowest level since April.
UBS shifts to underweight equities as trade war escalates further
The results came in what has been a whiplash-inducing week for investors following US President Donald Trump's comments at the Group of 7 meeting in France.
" Donald J. Trump (@realDonaldTrump) August 23, 2019
After China added its own retaliatory tariffs on American imports, Trump on August 23 said he would increase existing tariffs on US$250 billion of Chinese-made products and add 15 per cent tariffs on another US$300 billion of goods, including bowling shoes, research monkeys and tea. In a series of tweets, he also "ordered" US companies to move their operations out of China and called Chinese President Xi Jinping an "enemy".
But on Monday at the G7, Trump did a complete U-turn, calling Xi a "great leader" and "brilliant man", while saying he believed China wanted to reach a trade deal.
More than a third of investors expect recession in 12 months, survey finds
Uncertainty about the trade war, and its escalation in recent months, has raised fears that a global recession may be on the way.
Recession fears reached their highest level in eight years this month, according to Bank of America Merrill Lynch's monthly survey of fund managers. The bank's US economists believe there is a one in three chance of a recession in the next 12 months.
"Businesses need stability and predictability to make decisions, and this environment is anything but," Eli Lee, head of investment Strategy at the Bank of Singapore, said in a research note on Thursday. "If the ongoing decline in business confidence is severe enough, it would eventually spill over to the consumer side of the economy and labour markets. This drives up the risk of a recession."