Global investors continued to buy into the euro zone economic recovery story in October, increasing their exposure to both the region's equities and bonds, a Reuters poll showed on Thursday. Investors boosted their holdings of eurozone equities for the fourth month in a row to the highest since February last year, and their bond holdings to the highest since September 2011.
Conversely, the high degree of volatility sparked by the US government shutdown and fears a breach of the country's debt limit might trigger a default pushed investors' holdings of US bonds to the lowest since September 2011.
A total of 53 fund managers took part in the Reuters global asset allocation poll for October, which was conducted October 16-30.
That period encompassed the unofficial October 17 deadline set by the US Treasury to raise the country's borrowing limit, which Congress met just in time. The 16-day partial government shutdown also ended on October 16.
As uncertainty surrounding the US outlook increased in October, so did the cautious optimism surrounding the euro zone where a gradual - if bumpy - improvement will help bolster the global economic recovery and investment climate.
"The low interest rate environment continues to be supportive for corporate earnings and the overall economic trend is positive despite some mixed data," said Boris Willems, strategist at UBS Global Asset Management.
On a global level, however, investors trimmed their exposure to equities for the first time in four months. They held 50.5 percent of their global balanced portfolio in stocks, compared with 50.9 percent in September.
Within the equity universe, investors increased their allocations to the euro zone to 17.7 percent from 17.3 percent, and increased their US holdings to 42.2 percent from 41.7 percent.
Fund managers' holdings of bonds inched up to 36.7 percent from 36.6 percent in September. The regional breakdown showed a marked divergence between the euro zone and United States.
They ramped up their euro zone holdings to 28.3 percent from 27.4 percent, but slashed their US and Canadian bond holdings to 35.6 percent from 37.5 percent. That was the biggest cut since March last year.
The poll showed investor appetite for emerging markets held up well, perhaps a surprise considering many of these economies are slowing. This was most notable in emerging Europe, where equity holdings rose to 2 percent from 1.6 percent.
Global investors increased their exposure to US equities in October. US investors trimmed their exposure to global equities to the lowest since before the global financial crisis began in 2007.
With stock indexes at record highs, US fund managers scaled back their recommended equity allocations to 55.9 percent in October. At the same time, they upped their aggregate cash weightings in balanced portfolios to 3.8 percent, the highest since November 2012.
Japanese fund managers increased their assets allocated to equities to a 1-1/2-year high on expectations that the US Federal Reserve will not reduce its stimulus in the near future.
The equity holdings of 12 Japanese institutional fund managers rose to 44.2 percent of their global balanced portfolio from 40.0 percent.
After the Fed surprised most analysts in September by beginning to unwind its monthly $85 billion bond-buying programme, the forecast now is that the so-called "taper" will start next year.
A poll of 14 British fund managers uncovered slightly more caution. They trimmed their equity allocation to 54.1 percent from 55.2 percent - still a clear overweight - and raised their bond holdings to a four-month high of 24.4 percent.
"It seems increasingly likely that tapering QE will begin in early 2014, not late 2013, suggesting that we may have a more stable backdrop for markets in the run-up to the year- end," said Mark Robinson, chief investment officer at Berry Asset Management.
Euro zone fund managers were in more bullish mood, thanks to the twin hopes of gradual economic recovery and looser policy from the European Central Bank.
Their holdings in euro zone bonds increased to 62.4 percent, a level not seen since September 2011, and their equity allocation rose to 47.9 percent, the highest since January this year.