Investors hoping the worst is over

Investors are becoming increasingly confident that equity markets and the world economy are on the mend following a near 30 percent stock rally and a series of better-than-expected economic reports.

• Even as global stocks were taking a hit on Tuesday amid renewed worries about the state of U.S. banks, two sentiment surveys showed investors looking ahead to better times.
• State Street’s monthly global investor confidence index shot up to a nine month high in April, with the U.S. financial services firm finding improved sentiment across the board in North America, Europe and Asia.
• Meanwhile, Germany’s ZEW survey of analysts and investors not only rose more than expected it entered positive territory for the first time since before the credit crisis erupted.
• “Investors are gradually seeing light at the end of the tunnel,” said economist Andreas Rees from Unicredit.
• The two sentiment indicators fit into a pattern seen in other surveys. Reuters asset allocation polls, for example, have shown a steady increase in the appetite for equities since the beginning of the year.
• The latest surveys follow a sharp rise on world equity markets. MSCI’s all-country world index .MIWD00000PUS began rallying from a low on March 9 and rose nearly 30 percent over six weeks of gains.
• There has also been as stream of economic news that at the very least has suggested a levelling off of the global downturn.
• The past two days, however, have seen losses and raised the question among some investors as to whether the rally is simply stalling or will reverse.
• SENTIMENT UP
• State Street said its global investor confidence index rose by 9.4 points to 79.6, its highest since July, from the upwardly revised March reading of 70.2.
• The index is now 65 percent up on an all-time low in December of 48.2, but well off the record high of 111 set in February 2001.
• “Institutional investors have participated with some enthusiasm in the recent market recovery,” said Ken Froot, Harvard University professor and a co-developer of the index.
• The data is extrapolated from movements in around $12 trillion of assets State Street holds as custodian for institutional investors.
• The Mannheim-based ZEW economic think tank said its monthly poll of economic sentiment rose to 13.0 from -3.5 in March, showing its first positive reading since July 2007.
• April’s rise took the headline index to its highest level since June 2007, shooting well past the 1.5 consensus forecast.
• The ZEW report comes days before two other German indicators are expected to show slight improvements — both a purchasing managers’ survey due on Thursday and Friday’s business climate index from the Ifo institute are seen edging up in April.