Japanese fund managers trimmed their overall exposure to stocks in April and increased their bond holdings, a Reuters poll showed. Respondents on average allocated 38.3 percent of their model portfolios to stocks in May, compared with 38.6 percent in April.
The reduction in stock exposure was concentrated on emerging market equities. These markets had risen on an inflow of funds while developed economies kept their interest rates low through loose monetary policies. But their gains are now reversing as developed economies have either started to normalise monetary policy by hiking rates or are poised to do so.
Poll respondents said they reduced Asia-excluding Japan equities to 3.8 percent in May from 5.5 percent in April, and also cut Latin American stocks to 1.7 percent from 3.3 percent. They kept their North American stock exposure unchanged at 28.6 percent in May and increased Japanese stocks to 48.9 percent from 47.2 percent.
Kota Hirayama, senior emerging markets economist at SMBC Nikko Securities, said factors including an ebb in US-China trade tensions, emergency monetary tightening by Turkey and the possibility of Argentina receiving IMF assistance have slightly assuaged investor concerns over emerging markets.
"But fears are increasing that the economic fundamentals of emerging markets could worsen due to their slumping currencies. Their central banks also have to deal with a likely rise in inflationary pressures, which could be a major test of resolve," he said. The respondents' overall exposure to bonds increased to 55.4 percent in May from 55.2 percent in April.
Safe-haven government bonds, notably US Treasuries, gained towards the end of May as political turmoil in IItaly unnerved global markets The respondents raised their North American bond holdings to 30.4 percent in May from 28.7 percent in April and reduced Japanese bond exposure to 42.6 percent from 45.5 percent. They shaved euro zone bond holdings to 20.6 percent in May from 20.8 percent in April.
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