Gobal investors shied away from Euro zone in February amid concerns about Greek debt, poll shows

Written by Ray Clancy

Monday, 01 March 2010 09:34

Investors shied away from European government debt in February, cutting bond allocations to the region in favour of UK and emerging market paper as angst over Greece and other euro zone peripheral economies grew.

According to a poll by Reuters of 45 leading investment houses, fund managers lifted their exposure to equities, although much of this was the result of bullishness among US investors.

Overall, the average exposure to equities was 55.4%, up from 55.1% in January. Bond allocations fell to 33.3% from 33.7% and cash rose to 4.8% from 4.1%.

The conclusion is that investors are cautious about the global economic recovery but not overly worried about a large retrenchment.

‘The massive fiscal programmes of governments have prevented a collapse in global economic demand. However, there are medium term dangers as the deleveraging process still looms large,’ said Peter Bezak, portfolio strategist at Sarasin in Zurich.

One of those dangers is the increasing worry about sovereign debt, centred on Greece but also bringing in others such as Portugal, Spain, Italy and even France. The result, according to the Reuters polls, has been something of a flight from euro zone government paper.

Allocations within bond portfolios to euro zone debt fell to 39% from 42.1% a month earlier. The main beneficiaries were Britain, up to 9.7% from 7.3% and emerging markets, up at around 7% from around 4%.

‘Greece and other sovereign issues will overhang markets and should encourage a cautious stance,’ said one respondent.

US fund managers added further exposure to equities in February to reach their highest level in 14 months on signs an economic recovery is strengthening. Based on 11 US based fund management firms, the US poll found an average of 66.2% of assets in equities, compared with 64.8% a month earlier and 65% in December, the high for 2009.

The group cut exposure in bonds, alternative investments and property. Fixed income holdings fell to an average of 29.1% from an average of 29.4% in January.

Continental European investors boosted cash and bond positions while they cut back on equities and alternatives in February. The poll of 13 European based asset management firms showed a typical mixed portfolio holding 49.8% of its assets in equities, down from 51.2% in January.

Allocation to bonds, which include government bonds and corporate debt, rose to 37.4% in February from 36.8% in the previous period. Cash rose to 6.5% from 5.3%, its highest since May. Holdings in alternative assets fell to 4.4% from 4.7%.

Japanese fund managers made few changes to their model portfolios, expecting global markets to waver between recovery hopes and concerns over governments’ exit strategies from stimulative policies.

British fund managers shifted exposure away from bonds as fears of a European sovereign debt crisis weigh, boosting exposure to cash and equities. Allocations to bonds among 10 firms fell to 18.5% in February, from 20.4% in January while exposure to stocks increased by more than 1% to 59.9% and cash was up to 7.4% from 6.7% previously.