U.S. Markets closed

Global investors lift exposure to stocks as major markets touch record highs

By Chris Vellacott

LONDON (Reuters) - Global investors increased their bets on stocks during February as major equity markets broke through all-time highs, fuelled by the promise of more monetary stimulus, Reuters' monthly asset allocation poll showed.

As around 20 central banks have cut interest rates since the start of 2015, and with the European Central Bank set to launch quantitative easing next month, investors expect loose monetary policy to stir growth and boost corporate earnings.

A lower oil price and a strong U.S. economy are further positives for earnings, although as equity valuations are already high, investors also saw reason to be cautious.

The monthly asset allocation poll, covering 47 fund managers and chief investment officers in the United States, Europe and Japan, found that the average recommended exposure to stocks in global balanced portfolios rose to 50.7 percent, the highest level since last September, from 49.5 percent a month earlier.

The increased exposure to stocks came largely at the expense of alternative investments, a category that includes commodities, private equity and hedge funds. Average allocation to alternatives fell to 5.1 percent, from 6.5 percent in January.

There were also slight cutbacks in bonds, down a fraction at 36.5 percent, and property, which eased to 1.8 percent from 1.9 percent in January. Cash holdings rose slightly to 5.8 percent from 5.6 percent.

"We continue to prefer equities over cash and fixed income assets as we believe the current environment of accommodative central banks, structurally lower oil, and a strong U.S. economy is positive for earnings and equity markets," said Boris Willems, strategist at UBS Global Asset Management.

Investors favoured equity markets in the euro zone and Japan in particular.

"We remain constructive on risk assets, especially equities, that could continue to be supported by accommodative monetary policies, especially in the euro zone, in Japan and, selectively, in some emerging markets such as India and China," said Monica Defend, global head of asset allocation research at Pioneer Investments.

However, the headline trend disguises regional variations and warnings from contributors to the poll of ongoing risks that the equities party may be coming to an end.

Headaches cited by contributors included geopolitical risk stemming from the conflict in eastern Ukraine, the chance of a sharper-than-expected slowdown in China's economy or mis-timed interest rate decisions derailing economic recovery.

Tom Becket, chief investment officer at Psigma Investment Management in London, said a strong dollar, prompted by the prospect of rising U.S. interest rates as the Federal Reserve winds down its own stimulus, was hurting corporate America.

"U.S. companies are starting to squeal about the foul murder of their profits due to the strength of the dollar and its translative effects. This could well ensure that the S&P 500 goes nowhere for two years," he said.

The poll was taken from Feb. 13-25, when world stocks advanced by nearly 2 percent towards record highs reached last September.

The U.S. S&P 500 index rose more than 1 percent, progressing through a series of record highs over the survey period while Britain's FTSE 100 blue chip index also set an all-time high.

Emerging market stocks gained more than 1.5 percent gain during the survey period, heading towards a one-month high.

U.S. fund managers bucked the global trend with a slight cut in allocations to stocks, to 55.6 percent from 55.8 percent. They cut their U.S. and British stock allocations slightly while allocations into both high-yielding and investment grade bonds increased to the highest in two-years, the poll found.

Japanese fund managers lifted their recommended equity exposure to 44.6 percent from 41.4 percent a month earlier.

European investors boosted their bets on stocks to 48.6 percent - a five-month high - from 48 percent a month earlier. Exposure to bonds rose more than a percentage point to 36.8 percent.

British fund managers lifted recommended equity allocations to 53.9 percent from 53 percent while cutting back bonds by a percentage point to 23.7 percent.


(Reporting by Chris Vellacott, Ashrith Doddi, Sarbani Haldar, Maria Pia Quaglia and Shinichi Saoshiro; Editing by Susan Fenton)