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Friday May 28, 08:28
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Investors stick with stocks despite rate worries
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Investors across the world stayed faithful to equities in May but some sought short-term safety in cash or bonds in the face of expected higher interest rates and continued geopolitical tension, Reuters polls showed on Friday.
Surveys of leading fund management companies in the United States, Japan, continental Europe and Britain indicated different regional tactics among investors over the month but a long-term preference for equities over bonds and other assets.
The polls showed investors generally held mild overweight positions in equities and most expected to continue doing so in the months ahead despite recent losses on global stock markets.
The four regions held roughly 60 percent of their assets in stocks, a figure that likely is inflated by British funds, which are traditionally heavily exposed to equities. Fixed income holdings averaged slightly more than 30 percent.
In interviews accompanying the polls, however, strategists said that a climate of uncertainty about the impact of expected U.S. monetary tightening was dominating money flows.
"We’ve moved clearly out of a deflationary environment but haven’t fully grabbed hold of a strong inflationary environment," said Arnim Holzer, investment strategist with global player Deutsche Asset Management.
Analysts have said for some time that a move this year by the U.S. Federal Reserve to end the era of ultra-easy money would be a critical moment for financial markets, prompting a claw back of stocks and at least a temporary move to safety.
That happened in May as expectations of a Fed hike as early as June became widespread.
"People have started to be afraid that inflation might have been let out of the bag.... We have been worrying about higher interest rates for some time," said Michala Marcussen, associate director of strategy at Societe Generale Asset Management.
The polls suggested that investors were reacting to the changing climate in different ways.
British investors, for example, favoured a move into euro zone debt, where interest rates are not expected to change. European investors, however, cut bonds for stocks.
REGIONAL RESULTS
The U.S. poll showed fund managers allocating more than 61 percent to stocks and 34 percent to bonds -- figures that were not comparable with previous polls because of sampling differences.
Within equities, the poll showed managers shifting to Asia ex-Japan while cutting back in North America.
U.S.-based bond portfolios had a North American allocation of 38 percent and a euro zone allocation of 29 percent.
European fund managers cut bonds in preference for stocks and kept a negative stance towards fixed income for the near term amid expectations of the higher rates.
Managers of mixed portfolios of stocks, bonds and other assets cut average bond holdings to 37.7 percent in May from April’s 40.80 percent, and raised stocks to 52.88 percent from 50.81 percent.
Average cash balances fell slightly in May, suggesting there was little spare liquidity set aside to put in to different assets.
Japanese fund managers trimmed stock investments on concerns about interest rate rises but remained bullish on domestic equities where earnings have been strong.
The poll showed an average global portfolio would have 58.1 percent in shares in May, down from 60.2 percent a month earlier -- the highest since the survey began in March 1995.
At the same time, the investors boosted their weighting in cash to 5.4 percent -- the highest since December -- from 3.7 percent in April. Their weighting in bonds also inched up to 36.4 percent from 36.1 percent a month earlier.
The survey of British fund managers showed them raising holdings of euro zone bonds to 42.2 percent of total bond holdings from 37.6 percent in April, while overall equity holdings slipped to 75.3 percent from 81.6 percent of total assets.
(Reuters)
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