UK investors cut stocks as global fears return

LONDON Tue May 1, 2012 1:48pm BST

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LONDON (Reuters) - British investors cut back on exposure to stocks in April and parked more of their money in low-risk cash as renewed worries about the euro zone debt crisis and a hard landing in China prompted a shift into safer assets, a Reuters poll has found.

The average allocation to equities in balanced portfolios dropped more than a percentage point to 53.5 percent this month from 54.9 percent a month earlier, according to the survey of 15 investment managers in the UK.

Allocations to cash were up to 6.5 percent from 5 per cent in March the poll found, while exposure to bonds increased to 22.6 percent from 22.4 percent.

"The main risks continue to be an imploding euro zone and a significant slowdown in Chinese GDP, with anything below 7 percent (growth) considered to be a hard landing by financial markets," said Robert Pemberton, investment director at HFM Columbus Group.

Exposure to property increased slightly to 2.4 percent from 2.2 percent while allocations to alternative investments such as commodities, hedge funds and private equity dropped to 15 percent from 15.5 percent during April.

Respondents highlighted political events as the most likely source of shocks to sentiment in the coming months.

"Over the years, I have become an international economist, then a market strategist and an expert in behavioural finance. The latest development is becoming a political expert," said Andrew Milligan, head of global strategy at Standard Life Investments, which has around 155 billion poundsof assets under management.

"New shocks are the most interesting issues to include in asset allocation planning - and politics, regulation and policy error look to be the most important of those," he said.

Some warned that complacency in the face of major events such as leadership transitions in China and other countries would make any shock all the more damaging to sentiment.

"Any disturbance to the received wisdom that the Chinese government is good at managing its economy or that there will not be a relatively smooth transition when the leadership changes later this year is not in the price," said David Miller, a partner at Cheviot Asset Management.

Others noted a sense of reality returning to investors' appreciation of the euro crisis, after moves by the European Central Bank late last year to inject liquidity into the banking system lulled many into believing the storm had passed.

"Tensions are now rising again as the ECB's tonic wears off," said Dirk Wiedmann, Head of Investment at Rothschild Wealth Management.

That cautiousness brings a halt, at least for now, to the steady rise in risk appetite seen this year, after bouts of market volatility during the latter months of 2011 sent many investors running for the exits.

One of Britain's largest fund houses, Aberdeen Asset Management (ADN.L), on Monday reported earnings for its first half year to March 31, showing investors had put more money to work, boosting the company's profits.

Other asset managers, including Jupiter Fund Management (JUP.L) and Polar Capital (POLR.L), have also reported a recovery in demand for riskier assets this year, as worries about the health of the global economy took a back seat.

The poll results suggest that trend is now reversing.

Investors continue to keep an eye on the longer term, however, using current market setbacks opportunistically to buy cheap assets.

"In the short term, volatility remains likely with markets currently being impacted by poorer economic data and political backdrop," said Alec Letchfield, chief investment officer for UK Wealth at HSBC Global Asset Management.

"We would however look to use periods of weakness in equities as a buying opportunity for those with longer time horizons."

(Reporting by Chris Vellacott; Editing by Catherine Evans)

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