|
 Equity holdings fell to 47.9 percent, the lowest since September,
while bond holdings rose to 37.9 percent, the highest since December
2014, reflecting a generally cautious mood among asset managers.
"Risks are still in high leverage in China and some other emerging
markets and also in uncertainty around the U.S. tightening cycle and
its impact on the U.S. dollar," said Joost van Leenders, chief
economist in the multi-asset solutions team at BNP Paribas
Investment Partners.
Giordano Lombardo, chief executive and group chief investment
officer at Pioneer, said he was maintaining a cautious approach amid
political risks, adding the possibility of tail risk events was on
the rise.
The survey of 52 fund managers and chief investment officers in the
United States, Europe, Britain and Japan was conducted between Dec.
14 and 21.
During this period, the U.S. Federal Reserve raised interest rates
by 25 basis points, its first increase since 2006, and signaled it
would tighten further at a gradual pace in 2016.
Raphael Gallardo, asset allocation strategist at Natixis, thought
that rate hikes were occurring too late in a cycle that was "already
ebbing".
"If the Fed hikes more than twice in H1 2016, it might trigger a
downturn in H2, with potential financial tensions in equity and
credit markets," he said.
Peter Lowman, chief investment officer at UK-based wealth manager
Investment Quorum, also identified the chance of a mild recession in
the United States, or the mismanagement of U.S. monetary policy, as
key risks for 2016.
Within their equity portfolios, asset managers trimmed their
exposure to U.S. stocks by two percentage points to 38 percent, the
lowest level since September. Euro zone equities were cut back to 18
percent, the lowest since January 2015.
Early in December the European Central Bank failed to meet the
market's expectations for all-out monetary easing, triggering a
sell-off in European equities. The FTSE Eurofirst index is down
almost 7.7 percent month-to-date.
Investors raised their Japanese equity allocation to 20.6 percent,
the highest level since November 2014, following a decision by the
Bank of Japan to reorganize its massive stimulus program in an
attempt to boost investment.
"With cash yields close to zero almost everywhere, we feel that
markets still offer much better investment prospects ...as we head
into 2016," said Steven Steyaert, a senior portfolio specialist at
NN Investments.
"Resilience in developed markets' domestic demand will remain a
steady anchor for the global economy in the coming quarters."
Within their bond portfolios, investors trimmed exposure to the U.S.
to 38.2 percent, the lowest since August, and euro zone holdings to
26.1 percent, the lowest since September.
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Asset managers raised their UK bond holdings to 12.8 percent, the
highest level since December 2014. The U.S. rate rise was broadly
interpreted as clearing the way for a similar move by the Bank of
England, albeit not right away.
UK interest rates have been at a record low 0.5 percent since 2009.
The next Bank of England rate announcement is due on Jan. 14.
SIGNS OF CAPITULATION
Investors remained split over whether it made sense to return to
emerging markets in 2016 following a terrible performance in
equities this year.
The benchmark emerging stocks index has sold off by almost 17
percent year-to-date and asset managers cited worries about a
worsening economic picture in China and rising political risk, such
as tensions between Russia and Turkey.
At the same time commodity prices have collapsed, undermining the
economies of the big commodity exporters.
Oil prices are down at around $36 a barrel - the lowest in more than
11 years - following OPEC's decision to maintain production at its
December meeting.
Meanwhile, copper slipped to a 6 1/2-year low in November before
rebounding slightly in December.
"There are signs of capitulation in commodities and emerging
markets, though these remain an investment only for (those) with a
high risk/reward tolerance," said Rob Pemberton, investment director
at UK-based HFM Columbus.
But Nadege Dufosse, head of asset allocation at Candriam, said they
had become more positive on Asian countries. "We think that the
slowdown in growth is integrated in expectations and the bottoming
out of commodities should help the improvement of global sentiment,"
she said.
(Additional reporting by Maria Pia Quaglia Regondi and Sujata Rao;
editing by John Stonestreet)
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