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World investors diverge on the outlook for stocks

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[September 30, 2014]  By Chris and Vellacott

LONDON, (Reuters) -Global investor sentiment is diverging, with Europeans, including the UK, remaining bullish on stocks and keeping allocations in place while the United States and Japan fret over rising risks, a Reuters poll showed on Tuesday.

The monthly survey of 49 investment houses from the United States, Japan, continental Europe and Britain showed the average recommended allocation to equities in global balanced portfolios
was unchanged at 50.7 percent.

However, the figure hides marked differences in outlook between regions. Europeans are raising equity exposure while U.S. and Japanese fund managers are cutting allocations as they grow wary of perceived threats to global growth.

Widespread caution was apparent in relatively big bets on bonds, typically less volatile than shares. They saw allocations rise to 36.2 percent from 35.2 percent, the highest since March.
 


Optimists taking part in the survey pointed to an economic recovery that is gathering momentum in the U.S. and the UK.

"Equities, particularly outside the United States, are still fairly valued. Second, monetary policy overall continues to be accommodative, in spite of some policy divergence over the coming months and years. Third, the OECD (developed) economies remain in expansion, led by the US," said Boris Willems, a strategist at UBS Global Asset Management.

However, others highlighted monetary policy uncertainty in the United States, geopolitical risks surrounding Russia's standoff with the West over Ukraine, weak growth in continental Europe and uncertainty over China's growth trajectory.

"Central banks may look to raise rates sooner and faster than markets are currently expecting. The second notable risk is the vulnerability of emerging market equities, to both a tightening of US monetary policy and also geopolitical fallouts from Russia and the Middle East," said Bambos Hambi, fund manager at British investment firm Standard Life Investments.

The average allocation to cash fell to 5.7 percent from 6 percent a month earlier, lifted in part by British fund managers putting more money to work.

Allocations to cash usually rise when investors expect a period of market volatility and seek to put more of their money in safe havens, but fall when sentiment turns bullish.

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Investors also cut back slightly on property, dropping the average exposure to 1.8 percent from 2.2 percent, and lifted allocations to alternative assets, such as hedge funds and private equity to 5.6 percent from 5.1 percent.

European asset managers led the support for equities among poll participants, lifting exposure nearly three percentage points to 48.6 percent on average.

British fund managers also were in bullish mood, cutting back cash to 6.6 percent from 8 percent, though average recommended equity allocations at 55.5 percent were little changed from a month earlier.

However, U.S. fund managers recommended cutting global stock holdings in their model portfolios to the lowest level since the financial crisis - to 55.9 percent from 56.1 percent a month earlier.

Japanese fund managers cut the proportion of shares to 42.6 percent in September from 45.5 percent in August while allocations to bonds increased to 52.3 percent from 48.5 percent the previous month.

The poll was taken between September 15 and 26, when world stocks easing back from the record highs touched in July and August. The U.S. S&P 500 index set a record high during the survey period but has since eased back nearly 2 percent and has lost more than 1 percent since the start of the month.
 


Emerging stocks hit 3 1/2-month lows at the end of the period, battered by a strong U.S. dollar luring investment away, fears of China slowing down and fallout from the standoff with Russia over its role in Ukraine.

[© 2014 Thomson Reuters. All rights reserved.]

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