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Investors seek cash shelter from eurozone fears
Fund managers are most concerned about Spain's finances.
Cash is making a comeback in fund managers' portfolios as tremors from the eurozone’s sovereign debt crisis renew investor worries.
The number of investors with overweight cash positions quadrupled in the past month to 24% in April, up from 6% in March. In that time the cash holdings in the average fund manager’s portfolio increased from 4.2% to 4.6%.
Bonds have suffered in the dash for cash as a net 48% of fund managers are now underweight the asset class, compared to 44% last month.
Spain’s rising bond yields and the resurgent sovereign debt crisis has brought four months of optimism to an end as investors are more risk adverse and downbeat, with only 20% expecting global growth to improve in the coming year.
As a consequence there are greater hopes for further quantitative easing from the US Federal Reserve and the European Central Bank (ECB), with more fund managers expecting central intervention in the markets in the next six months.
The figures come from a survey of 256 investors conducted by Bank of America Merrill Lynch from 5-12 of April.
Spain and France are top concerns
The survey revealed that investors are most concerned about the financial stability of Spain, as the cost of financing the country’s government debt peaked above 6% in April.
However worries about a shift in the French outlook on the eurozone are also driving risk aversion. The upcoming elections could oust president Nicolas Sarkozy and socialist opposition leader, Francois Hollande, has made it clear that he wants to renegotiate the fiscal compact deal, designed to draw the region closer together.
Gary Baker, head of European Equities strategy at Bank of America Merrill Lynch, said: ‘The survey highlights that while investors’ primary concerns in the EU is Spain’s economy, the outcome of and uncertainty around France’s elections is also figuring high in their decision making.’
US equity exposure surges as emerging markets suffer
An improved outlook for growth in China among fund managers surveyed, despite recent figures showing the weakest economic growth since the financial crisis, was one point of optimism for investors, as expectations were at their highest levels since November 2010. A net 4% of investors expect the country’s economy to improve in the next year, up on a net 9% predicting a downturn in March.
However the brighter forecasts failed to translate into a driver for asset allocation as investors overweight in emerging markets declined from 40% last month to 28% in April.
US equities reaped the rewards as allocation to the region almost doubled, with fund managers up a net 14% overweight in March to 27% this month, to make it the only attractive region for investors.
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