British investors increased their equity exposure in August from July's nine-month lows, favouring emerging markets after a shake-out in the sector, but cut UK assets as the risk of a no-deal Brexit grew. Reuters' monthly asset allocation poll of 17 UK-based asset managers was conducted Aug. 16-28 as world stocks climbed to a six-month high.
US equities also set record highs after a US-Mexico deal to overhaul the North American Free Trade Agreement (NAFTA) raised hopes that a global trade war could be averted. Most participants completed the poll before the accord was announced, but the mood was still more bullish than it had been in July when trade war concern sapped investor confidence.
"The global economy remains in a period of synchronised economic growth and despite some weakness in the eurozone, continues to gather momentum," said John Husselbee, head of multi-asset at Liontrust. In the poll, British managers raised their global equity exposure to 51.2 percent from 50.4 percent in July. They cut cash by 1.6 percentage points to 4.4 percent, the lowest level in at least five years.
Mark Shields, investment director for the multi-asset team at Brooks Macdonald, was among those overweighting risk assets: "Premiums in valuations in the US are warranted in our view given the strong consumer backdrop, earnings momentum and the pace of economic expansion," he said. The US stocks allocation held at last month's 34 percent, the highest in nearly two years. Investors also ramped up their exposure to emerging-market stocks to 18.4 percent from July's 16.3 percent, after a turbulent month.
Emerging-market equities are down over 9 percent year-to-date, clobbered by trade war fears and rising US interest rates. Emerging-market currencies sold off again in August as crises in Turkey and Argentina intensified and rising US sanctions risk hit Russia.
The lira is now down over 40 percent year-to-date, crushed by Turkey's loose monetary and fiscal policy and a diplomatic rift with the United States. But poll participants who answered a question on the currency's travails were split over whether the lira had troughed. Forty-one 41 percent said it hadn't, a third said it had, and a quarter were undecided. There was more agreement over whether it was time to buy emerging-market assets. Two-thirds of those who answered that question agreed.