Global investors cut back on stocks and bonds in April, lifting cash levels to a seven-month high, on signs the world economy may be heading for softer growth, Reuters polls showed. Slower-than-expected growth data from China and the United States over the past month, and a sluggish eurozone, have prompted caution. However, fund managers in the monthly asset allocation polls, released on Tuesday, showed no sign of panic.
They remained overweight stocks and underweight bonds and cash overall, confident that central banks would keep providing cheap financing and support economic growth. "Most parts of the world economy have had a hit to growth ... However, the underlying strength of private sector domestic demand is clearly still intact, while more central banks are keeping policy easy," said Andrew Milligan, head of global strategy at Standard Life Investments.
"So, in due course, we expect investor nervousness will die down." The average cash positions of 57 leading investment houses in the United States, Europe and Japan rose to 5.3 percent in April, their highest since September, up from a two-year low of 4.1 percent last month. Funds on aggregate cut their equity holdings to 49.6 percent of their portfolios, a seven-month low, from 50.7 percent last month. Bond allocation fell to 38.0 percent from 38.3 percent. Alternatives, which include investments in commodities and other assets, rose to 5.6 percent from 5.4 percent.
The survey was conducted between April 15 and 29, when concerns about weaker global growth triggered a sell-off in oil and other commodities. However, beyond a temporary retreat to safe cash harbours, investors are likely to stick to risky assets in the long term. Twenty-five out of 28 respondents said the global growth slowdown and dip in world stocks in April were a temporary lull. World stocks, measured by MSCI, had only a brief dip before hitting their highest level since June 2008 on Monday.
In a month which saw a broad decline in peripheral yields especially in Spain and Italy, investors lifted allocation to euro zone fixed income assets to 24.9 percent, the highest level since May, from 23.7 percent in March. Investors increased equity allocation to Japan - one of the best-performing stock markets this year - to their highest since July, at the expense of the eurozone and emerging Asia.
Many are confident about the prospect for Japan's economy. Eighteen out of 23 said the Bank of Japan (BoJ) would be successful in reflating the domestic economy. "Early evidence suggests that both confidence and sales momentum are improving in Japan and may be enough to jump-start the moribund economy," said Alan Gayle, senior investment strategist and director of asset allocation at Atlanta-based RidgeWorth Investments.
US global fund managers raised their cash holdings to 3.3 percent, while cutting equity allocations to 57.4 percent, their lowest weighting since the financial crisis began in 2007. Japanese fund managers cut their allocations for global equities to a seven-month low of 39.8 percent in April, the lowest level since September. Bond allocations ticked up instead to 52.7 percent from 52.3 percent last month.
They also cut their weighting on Japanese bonds to a 16-month low after the BoJ's aggressive stimulus destabilised the Japanese bond market. European fund managers increased cash holdings to a seven-month high of 7.3 percent while reducing their equity holdings for a third straight month to 46.7 percent. British investors lifted their exposure to cash for the second month running, pushing the weighting to 5.8 percent. Exposure to equities slipped for a second month, to 54.6 percent, following several months of increases.
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