State Street Markets reveals a shift in investor risk appetite amid economic uncertainties

By Newsdesk

February 10 2026
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In a recent revelation by State Street Markets, the latest State Street Institutional Investor Indicators have showcased a notable shift in investor behaviour as uncertainty looms over global financial markets. The State Street Risk Appetite Index, a key measure of investor sentiment, fell to a neutral 0 in January 2026, down from a positive 0.36 in the previous month. This decline signals a cautious approach by institutional investors as they navigated a landscape marked by uncertainty around Federal Reserve policies and liquidity concerns in certain markets.

State Street Markets reveals a shift in investor risk appetite amid economic uncertainties

Dwyfor Evans, Head of APAC Macro Strategy at State Street Markets, provided insights into the evolving investor dynamics. "Several notable trends emerged from investor behaviour in January. Firstly, institutional investors increased their exposure to risk towards mid-month, but this exuberance for risk slowed as we approached month-end given uncertainty over the Fed Chair nomination, market liquidity, and valuations," Evans explained.

Despite the cautious sentiment, overall allocations to equities continued to rise, with investors ending January with equity allocations at their highest since October 2007. In contrast, allocations to bonds and cash decreased further, reaching their lowest levels since August 2008. Evans noted, "The equity-bond allocation divergence continues apace."

The report also highlighted the performance of the US dollar, which remained under pressure throughout January. "The USD remained on the back foot and lost further ground over the month despite less extensive USD selling towards January month-end. The narrative around USD diversification persists," Evans commented.

In terms of regional investment flows, the report revealed a diverse landscape. "Investors remain overweight US equities, and cross-border equity flows to Europe held up well on an absolute basis, but was generally weaker than the US, Japan, and Oceania," Evans stated. This trend may reflect ongoing concerns about weaker growth rates and regional earnings in Europe.

Furthermore, positioning in the euro (EUR) remains heavily overweight, but flows have weakened, posing a risk of unwinding extended positions. The British pound (GBP) showed underwhelming flows and positioning, while the Swiss franc (CHF) demonstrated the strongest flow profile across the G10 currencies, indicating a modest shift towards a more defensive stance at the end of the month.

In the Asia-Pacific (APAC) region, demand for Japanese equities remained positive, unaffected by currency interventions in the Japanese yen (JPY). "Positioning in the JPY remains a modest underweight," Evans noted. Additionally, there was a sharp rebound in demand for equities in Australia and New Zealand, with extended currency positioning in the Australian dollar (AUD) and New Zealand dollar (NZD).

Despite a strong performance by tech-related regional equity markets, such as China, South Korea, and Taiwan, cross-border equity flows remained relatively muted. Evans highlighted the contrasting currency positioning profiles in the region, stating, "Regional currency positioning profiles show a stark contrast between extreme overweights (KRW, TWD, and MYR) and extreme underweights (INR, PHP) and aligns with tech exposure."

As investors continue to navigate a complex economic landscape, these insights from State Street Markets provide a valuable perspective on the evolving dynamics of global financial markets. The cautious approach observed in January reflects the broader uncertainties faced by institutional investors, as they balance risk and opportunity in an ever-changing environment.

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