By Karin Strohecker
LONDON (Reuters) – European fund managers piled into bonds in November, boosting allocations to five-month highs, as concerns grew about global growth, but the popularity of U.S. assets remained unabated.
Following a torrid October, world stocks bounced in early November but ceded those gains later in the month as tech stocks and oil prices tumbled. Signs that global economic growth was losing steam, Brexit uncertainties, Italy’s budget-linked standoff with EU authorities and U.S.-China tensions over trade added to pressure on global markets.
The Reuters monthly asset allocation poll of 15 European asset managers was conducted on Nov. 16-29 and saw fixed income allocations jump to 40.5 percent from 37.9 percent – the highest level since June.
Exposure to equities in global portfolios nudged half a percentage point lower to 45.3 percent.
“In this late-cycle phase, with heightened geopolitical and idiosyncratic risks continuing to weigh on sentiment, we remain cautious on risk assets,” said Pascal Blanque, group CIO of Amundi.
“However, given the more appealing valuations and the fact that most of the bond yield repricing is behind us, there will be room to increase risk-taking in some areas of the market.”
European fund managers warmed to U.S. assets in both the fixed income and equities space. Within bond portfolios, those gains came at the expense of euro zone securities.
Fund managers also nearly doubled holdings of British bonds to 5.8 percent from 2.9 percent as an escalation in Brexit noise and the growth hit associated with Britain’s exit from the European Union made debt more attractive.
Ten-year British government bond yields fell around 10 basis points over the month <GB10YT=RR>.
Across equity portfolios, European asset managers raised not only U.S. but also emerging Europe and Latin America holdings, with the latter at levels last seen in May. That came at the expense of positions in the euro zone, Britain and Asia including Japan.
British blue chips <.FTSE> have lost about 2 percent in November, which compares with a retreat of roughly 1.5 percent for euro zone companies <.STOXXE> as global markets fail to rebound from a hefty correction in October.
Fund managers were split on whether the ECB would be forced to shelve plans to hike interest rates next year. Exactly half of the respondents predicted policymakers would plough ahead and deliver the bloc’s first rate hike since 2011 in the face of slowing growth.
Latest numbers from the euro zone showed the bloc’s economy grew at its slowest pace in four years in the third quarter. But some predicted this could change.
“After a disappointing 2018 euro area economic momentum should rebound into positive territory in 2019,” said Jan Bopp, investment strategist at Bank J. Safra Sarasin.
“Therefore, recent disappointing data should not alter ECB’s normalisation plans.”
(Reporting by Karin Strohecker in London, additional reporting by Maria Pia Quaglia in Milan; Editing by Alison Williams)