World investors see rates staying low and put faith in stocks: Reuters Poll
Wednesday, 2 July 2014 00:00
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REUTERS: Global investors put more money into stocks in June favouring the United States and Britain where economic recovery is gathering pace over other developed markets, a Reuters poll showed on Monday.
The monthly poll of 51 fund managers and chief investment officers in the United States, Britain, Europe and Japan showed the average recommended exposure to equities in global balanced portfolios rose to 51% from 50.8%.
This small increase came at the expense of allocations to bonds, which were down to 35.6% from 35.9% a month earlier.
Allocations to cash and alternative investments such as hedge funds remained unchanged at 5.7% and 5.6% respectively. Property investments were also slightly higher at 2.1%, advancing further after having reached their highest levels since June 2011 last month as investors sought out the yields offered by commercial real estate.
Within global equities portfolios, the average allocation to North American stocks rose to 42.1% from 41.5% while investors also hiked exposure to British stocks to 11.9% from 11.5%.
This came partly at the expense of equities in the euro zone, where economic recovery is seen as further off than in Britain and the United States.
Extra stimulus from the European Central Bank, which cut its deposit rate to negative earlier this month, and hints from Federal Reserve Chair Janet Yellen that rates are likely to stay low, are fuelling demand for riskier assets such as equities.
But while portfolios are increasingly shaped to catch an expected uplift from economic recovery and rising corporate profits, a significant number of investors taking part in the poll said they worry about the chance markets might correct.
“I am becoming uneasy about the increasing correlation between what are now fully valued asset classes and also by the gradual fall in volatility in equity, bond, commodity and FX markets to dangerously complacent levels,” said Rob Pemberton, Investment Director at British wealth manager HFM Columbus.
Geopolitical shocks to blame
Investors cited geopolitical shocks, such as more tension with Russia over the Ukraine crisis and more instability in the Middle East, as well as unexpected moves on interest rates by key monetary authorities, as significant risks.
“Even with mixed economic data, the foundation for moderate growth is in place, but its sustainability (in the absence of) easy monetary policy is uncertain,” UBS strategist Boris Willems said. “Further improvement in confidence is needed for self-sustaining growth.”
US fund managers recommended loading up on more American shares and bonds even as prices hit record highs in June, although they also increased cash allocations in their model global portfolio.
European fund managers made their highest allocation to equities this month since March 2011, cutting cash positions in a risk-seeking environment. Fund managers in Europe put 48.3% of their global assets in equities in June, well above the long-term average of 46%, and compared with 48.1% in May.
British investment managers also raised their exposure to stocks by more than a percentage point in June, to 55.2% from 53.8%, and showed a bias towards their home market, where economic fundamentals look comparatively rosy.
Japanese investors, in contrast, eased back on their equity exposure in balanced portfolios, to 44.2% from 44.8% in May, although they increased their euro zone bond holdings.
The poll was taken between 13 and 25 June, when world stocks were close to all-time highs and at levels last seen in 2007, prior to the global financial crisis.
The US S&P 500 had hit a record high in late June and rose more than 2% over the month.
Emerging stocks rose during June but remained off highs for the year reached in the first half of the month that had capped a sharp recovery from the volatility seen in 2013.
