World investors cut back stocks as risk aversion reigns

[December 18, 2014]  By Chris Vellacott
 
 LONDON (Reuters) - World investors lifted exposure to bonds and cut back on more volatile equities as sentiment was buffeted by a Russian currency crisis, an uncertain growth outlook and rapidly declining energy prices, according to a Reuters poll.

A monthly survey of fund managers in the United States, Japan, Europe and Britain in which 48 institutions took part, found the average allocation to stocks in balanced portfolios fell nearly a percentage point to 48.2 percent.

This marks the third consecutive month that exposure to equities has fallen. Allocations to bonds, seen as relatively stable and typically favored at times of market volatility, rose for the fifth month running, increasing to 38.2 percent from 36.8 percent, the survey showed.

The possibility that a falling oil price could destabilize energy-dependent economies such as Russia - currently caught in a currency crisis - or the Middle East, has helped heighten the sense of risk in markets, investors said.

Many participants highlighted political risks such as mis-timed interest rate moves that could choke off fragile economic recoveries and the ongoing standoff between Russia and the West over Ukraine as keeping a lid on risk-taking.

However, a significant number of participants in the poll said they had used recent bouts of market volatility to put more money to work, building up holdings of equities before an expected recovery in 2015. While declining oil prices could have a destabilizing effect in some areas, it also should act as an economic stimulus because it leaves consumers with more disposable income, they argued.

"A drop in the oil price acts like a tax cut for the consumer and consumption represents the lion's share of GDP," said Steven Steyaert, Senior Portfolio Specialist at ING Investment Management.

"In short, to us this equity sell-off creates a buying opportunity. As a consequence ... we decided to increase the equity allocation from a small to a medium overweight."

Oil prices have collapsed after OPEC last month decided not to cut output despite a global supply glut. Brent crude futures fell below $60 per barrel for the first time since 2009.

The poll was taken from Dec 9-17 when world stocks declined more than 3 percent as volatility reverberated around the world as Russia teetered on the edge of financial crisis.

The U.S. S&P 500 index fell more than 2 percent over the survey period, retreating from a record high set earlier in the month.

Emerging-market stocks hit one-year lows, declining more than 4 percent during the survey period, amid fallout from Russia and worries about a slowing Chinese economic growth path.

U.S. fund managers cut their recommended equity allocation for the fourth month running and continued to lift exposure to bonds and cash.

The average stock holding among U.S. investors dropped to 53.6 percent from 54.4 percent a month earlier. Bond holdings rose to 36.4 percent from 36 percent, the survey showed.[US/ASSET]

European investment managers also built up their holdings of bonds and cut back on riskier assets such as stocks. Average equity holdings among European participants in the survey dropped to 43.6 percent from 47.1 percent a month earlier. Bond holdings rose nearly two percentage points to 37.8 percent. [EUR/ASSET]

Japanese fund managers raised overall allocations to bonds to 52.7 percent in December from 51.8 percent in November, while cutting allocations to stocks to 42.9 percent from 43.2 percent.[JP/ASSET]

British investment managers bucked the global trend and lifted exposure to stocks more than a percentage point to 52.9 percent while their allocation to bonds also rose, to 25.8 percent from 23.9 percent. [GB/ASSET]

(Reporting by Chris Vellacott, Swati Chaturvedi and Deepti Govind)

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