European investors raised their holdings of equities and bonds slightly in July despite concerns about the potential for higher interest rates and war in the Middle East, a Reuters poll showed.
A poll of 11 major European fund management firms between July 24 and 28 showed they raised exposure to stocks to 50.2 percent in July from 49.5 percent in June. Bonds rose to 41.5 percent from 40.9 percent while cash fell to 3.6 percent from 4.5 percent.
Within equity portfolios, holdings of US stocks rose sharply to 48.5 percent from 43.9 percent in June and May's 46.8 percent. The drop in June had been exaggerated by the absence of a poll respondent last month. Exposure to euro zone equities rose slightly, and non-euro zone holdings such as British stocks fell sharply over the month.
Expectations of slowing global economic growth, led by the United States, is starting to weigh on people's minds, said Michael Collins, senior investment manager at Pictet Asset Management. "Attention has moved to the likely extent of a US slowdown," he said. In the near term, it may further cool investors' appetite for emerging market stocks, which tend, like China, to be highly geared to moves in the US economy, he added.
Earlier this month, Federal Reserve Chairman Ben Bernanke said the US economy still faced inflation risks but said cooler growth should curb price pressures over time.
In remarks seen as holding the door open to a pause in a two-year credit-tightening campaign, Bernanke said the Fed faced both the risk of pushing rates too high and damaging the economy and the danger of not doing enough to curb inflation. Funds are overweight equities, although their bullishness is expected to fade over the next three months.
They were bearish on bonds and hold that view for the next three months. Respondents were overweight cash, property and alternative assets such as hedge funds. Within equity categories, funds were bearish on the materials, discretionary consumer goods and staple consumer good sectors, and neutral towards energy and utilities. Their strongest overweight is on health care and telecom services.
Respondents were bearish on all bond categories. The most aggressive underweight positions were on Japanese government bonds (JGBs) and euro zone bonds.