European fund managers boosted cash levels to their highest since September this month as uncertainty over US stimulus withdrawal and volatility in emerging markets kept investors cautious. Concerns about China's economic slowdown pushed allocation to emerging Asian equities and bonds to two-year lows, a monthly Reuters survey showed. But investors were not generally more risk-averse, lifting their overall equity holdings from June.
The survey of 19 asset managers in Europe, excluding Britain, showed equities accounted for 47.1 percent of global balanced portfolios on average in July, up from 46.8 in June. Cash levels rose for the second month in a row, to 7.7 percent - their highest since September - from 7.6 percent in June. Bond holdings fell to 39.0 percent from 39.3. The poll was conducted between July 17 and 30, when world stocks as measured by MSCI hit a two-month high, supported in part by favourable European economic data.
"We have moved equities back to a medium overweight ... Although quantitative easing might be reduced in the United States, other central banks in developed markets remain inclined to ease further," said Steyaert Steven, senior portfolio specialist at ING Investment Management. "Ongoing strength in developed market macro data is clearly supportive as well. Especially in Japan and Europe, recent data surprised to the upside."
Allocation to emerging Asia equities fell to 7.0 percent, the lowest since June 2011, while holdings of Asian bonds fell to 2.2 percent, the lowest since July 2011. Asian shares have been underperforming the broader emerging equity index as the region's economies are closely tied to China, where fears of hard economic landing are growing.
Within fixed income, investors lifted government and high-yield bonds at the expense of investment-grade debt. They dislike euro zone and Japanese government debt, preferring corporate bonds. Investors are underweight material and utility stocks, while they are overweight the materials, consumer discretionary, health, and financial sectors.
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