State Street Market has released its institutional investor indicators. The State Street Institutional Investor Risk Appetite Index remained in positive territory in May, though it has retreated notably from its April peak. Market sentiment cooled across nearly all asset classes, with only the foreign exchange market maintaining overall stability. Even so, extreme positioning levels remain elevated, indicating that despite a gradual shift towards neutral market sentiment, investors retain confidence in the outlook for risk assets.

Over the past month, equity allocations saw a modest increase of 1 percentage point, primarily funded by outflows from cash holdings. Fixed income allocations, excluding Treasury bills, remained largely unchanged. Overall, the institutional investor positioning structure is stable, with only limited reallocation occurring among major asset classes.

Noel Dixon, a senior macro strategist at State Street Market, noted that by the end of May, asset managers' equity allocation ratios had reached their highest level since 2000. Equity holdings increased by 1 percentage point during the month, funded by cash. Fixed income asset allocations, in contrast, remained flat overall. Investors continued to increase their holdings in U.S. stocks, which remain the largest overweight asset. Within the U.S. market, allocations to healthcare, utilities, and information technology sectors rose, while allocations to communication services, energy, and real estate sectors declined.

Regarding the foreign exchange market, Noel Dixon pointed out that sentiment towards the U.S. dollar remained negative in May. The bank's 20-day dollar flow indicator was in the bottom fourth quartile, indicating that institutional investors remain significantly underweight the dollar. Despite several U.S. economic data points coming in stronger than expected, the interest rate market is only pricing in one Federal Reserve rate hike this year, a relatively dovish policy expectation compared to other major central banks.

Meanwhile, euro flows shifted from net inflows at the beginning of May to net outflows for the month. Escalating conflicts in the Middle East heightened market concerns about the European economic outlook, thereby dampening demand for European assets. In the Asia-Pacific market, the Korean won, offshore Chinese yuan, and Philippine peso saw the strongest buying interest, while the Thai baht, Indonesian rupiah, and Malaysian ringgit experienced slight net outflows.

Noel Dixon stated that overall weighted inflows into U.S. sovereign bonds strengthened significantly in May, implying that institutional investors have turned back to net buying. In contrast, German government bonds saw overall weighted net outflows throughout the entire month. Emerging market sovereign bonds also continued their net outflow trend in May. By region, Asia-Pacific bonds continued to face net selling, while Latin American bonds attracted net inflows.