LONDON (Reuters) - Global investors lifted their holdings of euro zone assets to the highest in more than a year this month while trimming exposure to Asian equities during a rout of emerging market assets, Reuters polls showed.
Fund managers are growing more optimistic about the euro zone’s recovery from recession and its debt crisis, reinforced by Germany - the bloc’s largest economy - enjoying its fastest rate of expansion in more than a year in the second quarter.
Reuters monthly asset allocation polls of 54 fund managers across the United States, Europe and Japan showed that investors raised their global equity holdings to a three-month high and cut bonds, but continued to show some caution, increasing cash buffers to their highest in a year. Uncertainty remains as to whether the Fed will cut its $85 billion a month bond-buying program as early as next month.
The prospect of less Fed stimulus has battered emerging market assets this month and the poll showed that allocations to Asian stocks outside Japan dropped to their lowest in more than three years. Improving U.S. and Chinese economic data, however, has lifted optimism about the global economic outlook.
“We remain upbeat about the global economy into 2014, as the private sector is still expanding,” said Andrew Milligan, head of global strategy at Standard Life in Edinburgh.
“In some countries, a virtuous circle could be starting between consumer demand, production and credit growth.”
Investors lifted euro zone equity allocations to 16.7 percent, the highest since March 2012, from 16.2 percent last month. They raised euro zone debt weightings to 27.5 percent, the highest since December 2011 and up from 27.3 percent.
In contrast, they cut their holdings of Asian shares to 6.9 percent, the weakest level since at least January 2010 and down from 7.3 percent last month.
Overall, investors increased global allocations to equities to a three-month high of 50.7 percent, up from 50.2 percent in July. Bond holding allocations dipped to 36.5 percent, from 37.0 percent.
The polls were conducted between August 14 and 29, when world stocks as measured by MSCI .MIWD00000PUS fell nearly 4 percent on caution over the Fed’s bond-buying plans and on concern about the possibility of U.S.-led military action against Syria.
World stocks are still up 8 percent this year, however, far outstripping emerging equities .MSCIEF, which have fallen 13 percent.
Despite a reduction in allocations to safe-haven bonds, investors increased their cash holdings to 6.2 percent, the highest since August 2012, from 6.1 percent in July.
“The main challenge for equities is not so much events as valuations, which are starting to look a bit expensive, thereby limiting upside and making them more vulnerable to any bad news,” said Robert Pemberton, investment director, HFM Columbus.
U.S. fund managers left their allocations largely untouched, with a slight increase in weightings towards equities. <US/ASSET>
Japanese fund managers cut their global exposure to equities, mainly in Asia, but lifted allocations to bonds in the UK and Europe to a 10-month high. <JP/ASSET>
European fund managers showed an increasing home bias, allocating their highest weighting to euro zone equities in 18 months. <EUR/ASSET>
British investors boosted their stock holdings to the highest level in more than two and a half years. <GB/ASSET>
Additional reporting by Tom Bill and Natsuko Waki in London, David Randall in New York, Massimo Gaia in Milan, Sarmista Sen in Bangalore and Ayai Tomisawa in Tokyo; Editing by Susan Fenton