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 A monthly survey of 46 investment houses from the United States,
Japan, continental Europe and Britain showed on Friday that the
average recommended allocation to equities in global balanced
portfolios had slipped to 49.5 percent, more than one percentage
point lower than in September.
Global bond allocations meanwhile inched to 36.4 percent, the
highest since October 2013, according to the survey.
Conducted between Oct. 17-28 - before this week's U.S. Federal
Reserve meeting or Friday's meeting of the Bank of Japan - the poll
continued to display a divergence in investor sentiment, as U.S.
fund managers cut stock allocations for the fifth straight month
while Japanese investors upped holdings.
The latter group's optimism - their equity holdings rose one
percentage point to 43.6 percent - appears well-founded given the
Bank of Japan's latest move to expand stimulus, a decision that
boosted Tokyo stocks to seven-year highs <.N225>.
Meanwhile, the United States appears well on the way to recovery,
with data this week showing third-quarter growth at a brisk 3.5
percent, and the Fed setting the clock ticking on its first interest
rate rise in almost a decade. It also ended - or tapered - its
six-year long bond-buying programme.
However, U.S. investors cut equity allocations to 55 percent, from
55.9 percent in September.
"The end of tapering and the eventual increase in interest rates in
the U.S. has reintroduced volatility into the equity markets," said
Wayne Lin, portfolio manager at Legg Mason Global Asset Management.
"As a result, we are slightly under-weighting our equity position in
favor of bonds until the market fully digests the shift of monetary
policy in the United States."
UK investors showed the greatest pullback in equity sentiment,
slashing holdings by 4 percentage points. Instead, they boosted cash
levels to the highest level in at least 2 1/2 year.
Europeans also cut stock allocations, to 47.7 percent, though these
stand just off three-year highs.
Overall cash allocations rose to 6.7 percent from 5.7 percent a
month earlier, reflecting fears of market volatility.
Investors said equity market risks stemmed from uncertainty over
China's growth outlook and also possibly from a
sharper-than-expected rise in short-dated two-five year U.S. yields.
"(These) could send the global economy into an abrupt slowdown after
a one-, two -uarter lag, and probably provoke an equity crash," said
Rafael Gallardo, an investment strategist at Natixis Asset
Management.
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U.S. IN FAVOUR
Despite caution, robust third-quarter company results in the United
States and Europe, expectations of U.S-style bond buying by the
European Central Bank and Fed signals of loose monetary policy for a
"considerable time" underpin a broadly positive attitude to stocks
and assets such as high-yield debt.
The BOJ action, too, is likely to accelerate local funds' move into
equities as it crushes local bond yields.
World stocks fell 10 percent between end-September to mid-October
but have since rebounded 7 percent.
"We are overweight equities, as we think the recent market turmoil
was overdone. We are also overweight corporate credit," said Joost
van Leenders, chief economist at BNP Paribas Investment Partners.
A common thread was a growing preference for U.S. stocks as even
before this week's GDP data, company earnings have been robust, with
three quarters of firms having beaten profit forecasts in the third
quarter of 2014.
The average weighting to U.S. stocks in global portfolios was 42.6
percent, up 1.3 percentage points from September. European investors
upped U.S. equity weightings to the highest since at least July 2012
while U.S. funds' allocations are at 72.3, a rise of six percentage
points since January.
"We believe that the U.S. economy is strong and in a full- blown
recovery and we think it will continue to grow after QE and after
interest rates begin to rise," Lin of Legg Mason said.
However, while the broad market backdrop - low interest rates,
economic recovery and high cash balances - is benefiting stocks, low
or falling inflation makes bonds an attractive investment too, many
say.
Again, the U.S. and Canadian bonds category was the most sought
after, with allocations rising 4 percentage points to 40.3 percent,
the highest since last February. Euro zone bond holdings inched up
slightly to 29.6 percent.
High-yield credit weightings rose to 12.5 percent, a six-month high.
Allocation to property and alternatives - hedge funds and private
equity - were broadly steady from September.
(Reporting by Sujata Rao and Karin Strohecker in London; Ashrith
Doddi in Bangalore; Editing by Larry King)
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