LONDON (Reuters) - British investors ramped up holdings of equities in August to levels not seen since December 2015 and cut cash to at least five-year lows, betting that easy money policies will continue.
Reuters’ monthly poll of 14 UK-based asset managers was carried out from Aug. 16 to 29, straddling the Jackson Hole meeting at which central bankers showed no sign of ending their super-loose credit policies.
This offset market jitters caused by tensions over North Korea.
UK-based funds raised their equity allocation 2.9 percentage points to 50.9 percent, whilst slashing cash levels 2.1 percentage points to 4.8 percent.
“The global economic recovery is still on track and with central banks continually being supportive in their monetary policies then opportunities remain in global equity markets,” said Peter Lowman, chief investment officer of wealth manager Investment Quorum.
He added the “buy on the dips mentality” remained resilient, with a “wall of money” still on the sidelines.
The nuclear stand-off between North Korea and the United States wiped $1 trillion off global shares mid-month, with tensions escalating at end-August.
Trevor Greetham, head of multi-asset at Royal London Asset Management (RLAM), said the initial sell off had triggered the first “buy” signal from the house’s contrarian sentiment indicator since the French elections in April.
As a result he had added to stocks, citing the positive fundamental backdrop.
All the managers who answered a specific question on the nuclear stand-off did not expect a military confrontation between the United States and North Korea before year-end.
Mouhammed Choukeir, chief investment officer, Kleinwort Hambros, argued that geopolitical crises tended not to affect markets for long.
“Analysing 16 serious crises since 1950, only four saw the S&P down one month or 12 months later. Even during those four, geopolitical factors tended to simply coincide with more mundane detractors, such as elevated valuations,” he said.
U.S. President Donald Trump also threatened in the month to shut down the U.S. government in order to secure funding for a border wall with Mexico. A September battle is looming over increasing the federal debt ceiling, which limits how much the U.S. government can borrow.
Yet 85 percent of managers who answered a question on the funding battle thought the chance of a U.S. technical default was less than 50/50.
Within equity portfolios, investors trimmed U.S. exposure to 29.9 percent, one-year lows, whilst adding slightly to emerging markets, which now account for 20.5 percent.
Euro zone equities were cut to 16.7 percent from 18.3 percent, although 85 percent of managers who answered a question on European stocks thought they could rally further in 2017.
Thomas McDonald, a portfolio manager at Russell Investments, was one of those who argued Europe’s economy was in good shape.
“Earnings season has also been strong and combined with a constructive global backdrop, absent any major geopolitical events we think the path of least resistance in the near term for European equities is higher.”
However, Kamil Amin, an investment strategist at Charles Stanley, argued there would have to be some weakness in the euro to support the next leg higher, whilst inflation would need to stay muted.
“From a positioning standpoint, technicals alone are unlikely to support further upside from here based on the fact that most managers are already overweight risk assets in Europe,” he said.
Reporting by Claire Milhench Editing by Jeremy Gaunt