Global funds once again opt out of stocks, despite
rally, Reuters polls show
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[August 29, 2020] By
Rahul Karunakar and Tushar Goenka
BENGALURU (Reuters) - Funds recommended
equity holdings be trimmed to the lowest in over four years in August,
despite record-breaking gains by world stocks, as the pandemic drags on
and new data suggest the nascent economic rebound is stalling, Reuters
polls found.
The August 17-27 poll of 35 fund managers and chief investment officers
in the U.S., Europe, Britain and Japan was largely taken before Federal
Reserve Chairman Jerome Powell announced a new policy framework
promoting higher inflation to spur economic recovery and job creation on
Thursday.
The Fed's new strategy sent U.S. Treasury yields higher, which gave a
lift to interest rate-sensitive financials and in turn boosted the S&P
500 index to a new record high and pushed the MSCI's all-country world
index to surge past its pre-COVID-19 high reached in February.
While world stocks have risen as much as nearly 60% since March troughs,
the poll showed average recommended exposure for equities in August in
the model global portfolio was the lowest since July 2016, down to 43.1%
from 43.9% the previous month.
Overall equity exposure is down 6.6 percentage points from the beginning
of the year, down from 49.7% in January.
"The recent upsurge in stock markets around the world is all noise for
us as a health solution is still out of reach. We are more concerned
about the recovery story. The risks to the global economy remain, with
tens of millions of people still out of work because of the pandemic,"
said a global chief investment officer at a large U.S. fund management
company.
"The stock market in the near term may be juiced further on the Fed
news. But we doubt whether the Fed would be able to lift inflation
despite the new target as it hasn't been able to do so since 2012. Let's
not forget, the U.S. economy is still in a deep crisis, and the risks
are more to the downside as Americans prepare to vote in a contentious
Nov. 3 election."
Economic recovery was foremost in Powell's remarks made as part of the
Kansas City Fed's virtual Jackson Hole symposium, in which he outlined
an aggressive new strategy that aims to boost employment and allow
inflation to run a bit faster for longer than in the past.
That came as new data suggest the labour market recovery is stalling,
while the U.S. economy suffered its sharpest contraction in the second
quarter since the government started keeping records in 1947.
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Federal Reserve Board building on Constitution Avenue is pictured in
Washington, U.S., March 19, 2019. REUTERS/Leah Millis/File Photo
The poll suggested keeping bond allocations - a key gauge of caution - for a
model global portfolio at 44.3%, the highest since the survey series started in
early 2010, for the third month in a row.
That defensive outlook of long-term investors does not align with the approach
of over 200 equity strategists in a separate Reuters poll this week, who expect
stocks to keep rising. But they did say a sombre economic outlook was likely to
push stock markets to close the year below their pre-pandemic highs. [EPOLL/WRAP]
In the latest poll, fund managers with a view on when the current bull run in
stocks will end were split. About 43% of respondents, or nine of 21, said it
already had. Seven, or 33%, said it has over two years to run.
"This recent bull market rally has been narrow in respect to sector rotation
with the economically-sensitive stocks having lagged whilst uncertainties over
the second wave of COVID-19 haunts part of the market," said Peter Lowman, chief
investment officer at Investment Quorum in London.
"Nonetheless, central bank policy remains supportive and therefore the equity
markets are likely to continue their upward trajectory but with some corrective
periods along the way."
But responses to a separate question suggested fund managers were still cautious
in their approach.
Asked what is the most likely change to their portfolios, over 85% of the fund
managers, or 18 of 21, said they would "roughly maintain the current risk
positioning". Those views were broadly unchanged from the July survey.
"This crisis is already telling us that it will not be a neat and tidy economic
global downturn followed by an equal and opposite neat and tidy upturn, like one
might see in a traditional economic cycle," said Mark Robinson, chief investment
officer at Bordier & Cie (UK).
"There are clearly still many uncertainties related to the virus itself and
uncertainty about the scale and shape of the recovery, so some caution is still
rightly warranted."
(Reporting and polling by Rahul Karunakar and Tushar Goenka; editing by Ross
Finley, Larry King)
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