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Spooked by China's equity rout and the possibility of a deeper financial crisis, European investors have increased exposure to safe-haven bonds to the highest level in 2015 while keeping cash allocations near three-year highs.
A Reuters poll conducted between August 10 and 27 found investors' nerves jangled by China, where a currency devaluation and wild equity volatility have raised concern that the economy could slow more drastically than investors had foreseen - a fear reinforced by a steady stream of weak data.
Steven Steyaert, senior portfolio specialist, Multi-Asset at NN Investment Partners, said investors needed to pay heed to possible feedback loops from markets to the world economy.
"For us, this environment justifies a more cautious asset allocation stance," said Steyaert, who has cut exposure to equities, real estate and credit, in addition to an already underweight stance on commodities and emerging markets.
"Also, we have upgraded government bonds again after being much more cautious on them during most of the second quarter," he added.
Bonds' share in European portfolios rose 3 percentage points to 37.4, the highest since December, the survey of 19 European investment managers showed.
The gains came at the expense of alternative investments, which include assets such as hedge funds and wine.
Global bond portfolios also put more money into euro zone debt, raising allocations by 2 percentage points to 29.1 percent.
While Beijing's interest rate cut this week and possible delays to US policy tightening have somewhat soothed concern, this month trillions of dollars have been wiped off world stock markets, including a 4 percent Wall Street fall on August 24.
World stocks are down about 6 percent in August.
Nevertheless, equity allocations rose 0.4 percentage points to 48.3 percent, a three-month high: despite fears for emerging markets, investors retain optimism over Western growth.
North American allocations rose over 2 percentage points to 38 percent, the highest since January, as confidence increased in the US recovery.
Data this week confirmed that belief, showing the world's largest economy grew 3.7 percent in the April-June quarter. The share of emerging assets stayed close to multi-month lows.

Copyright Reuters, 2015

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