Global funds raise euro­zone as­sets to over two-year highs

Kuwait Times - - BUSINESS -

Global in­vestors have raised their hold­ings of euro­zone eq­ui­ties and bonds to the high­est lev­els in more than two years, a Reuters poll showed, re­flect­ing a con­vic­tion that the Euro­pean Cen­tral Bank will not rush to raise in­ter­est rates.

In­vestors have sought sig­nals as to when the ECB will start re­duc­ing its as­set­pur­chase scheme, but the bank left its ul­tra-easy mon­e­tary pol­icy un­changed at its July meet­ing and did not even dis­cuss wind­ing down stim­u­lus . That prob­a­bly gave fresh im­pe­tus to in­vestor bullish­ness on Europe. Reuters’ monthly as­set al­lo­ca­tion sur­vey of 49 fund man­agers and chief in­vest­ment of­fi­cers in Europe, the United States, Bri­tain and Ja­pan, showed as­sets from the sin­gle cur­rency bloc con­tin­ued to be fa­vored.

The poll, con­ducted be­tween July 1726, showed funds boost­ing euro­zone eq­uity al­lo­ca­tions to an av­er­age 20.1 per­cent, the high­est level since April 2015 and up 3.4 per­cent­age points since the start of the year.

They also raised euro zone bond hold­ings by two per­cent­age points to 29.2 per­cent, the high­est since March 2015. Euro­pean eq­ui­ties are up 5 per­cent yearto-date though they are set to end July flat, pos­si­bly spooked by the euro’s surge to near two-year highs.

Over two-thirds of poll re­spon­dents who an­swered a ques­tion on mon­e­tary pol­icy said they did not ex­pect all four ma­jor cen­tral banks - the ECB, Bank of Ja­pan (BOJ), the US Fed­eral Re­serve and the Bank of Eng­land - to be in pol­i­cytight­en­ing mode by end-2018. The ECB and the BOJ were most of­ten named as the cen­tral banks likely to lag the other two. Alain Zeitouni, se­nior port­fo­lio man­ager at Rus­sell In­vest­ments, was amongst those who cited the ECB.

“We ex­pect a slow and grad­ual ta­per­ing in the course of 2018 in or­der not to scare global cap­i­tal mar­kets,” he said. “In­fla­tion re­mains sub-2 per­cent in the euro area and with po­ten­tial un­cer­tain­ties around Ital­ian elec­tions in 2018, it is very un­likely the ECB will act be­fore the end of the year.”Trevor Greetham, head of multi-as­set at Royal Lon­don As­set Man­age­ment (RLAM), said their high­est con­vic­tion view was that the BOJ would not raise rates. “The re­cent down­grade in their in­fla­tion out­look con­firms our view that the un­der­ly­ing in­fla­tion­ary pres­sures re­main low. We ex­pect yen weak­ness to boost Ja­panese eq­ui­ties,” he said.

In­vestors in­creased Ja­panese eq­uity ex­po­sure to 17.7 per­cent in July, the high­est since Novem­ber 2016, whilst rais­ing Ja­panese bonds by over 1 per­cent­age point to 13.5 per­cent.

The BOJ kept pol­icy un­changed in July and pushed back the tim­ing for achiev­ing its in­fla­tion tar­get. Some man­agers also doubt the Bank of Eng­land will be able to tighten any time soon, with Justin Onuek­wusi, a fund man­ager at Le­gal & Gen­eral In­vest­ment Man­age­ment, cit­ing frag­ile con­sumer de­mand and un­cer­tainty over Bri­tain’s up­com­ing exit from the EU. “The MPC will have to bal­ance a slow­ing econ­omy and ris­ing in­fla­tion - a mild form of stagfla­tion,” he said.

In con­trast, the US Fed­eral Re­serve is ex­pected to tighten fur­ther and to start re­duc­ing its bond hold­ings soon, a step it al­luded to at its July meet­ing.

In­vestors cut their US eq­uity hold­ings to 39.3 per­cent in July, the low­est level since Don­ald Trump’s elec­tion as US Pres­i­dent in Novem­ber.

Al­though US stock mar­kets have ral­lied to record highs, some in­vestors ex­pressed con­cern about stretched as­set prices. With Trump’s promised tax cuts and higher spend­ing al­ready priced in, the mar­ket is viewed as vul­ner­a­ble to dis­ap­point­ment. Some 85 per­cent of poll par­tic­i­pants who an­swered a ques­tion on Trump pre­dicted he would see out his four-year term, not­with­stand­ing an on­go­ing in­ves­ti­ga­tion into pos­si­ble col­lu­sion be­tween his pres­i­den­tial cam­paign and Rus­sia.

Sev­eral as­set man­agers saw im­peach­ment as dif­fi­cult un­less the Democrats made sub­stan­tial gains at 2018 mid-term elec­tions. Robeco strate­gist Peter van der Welle, how­ever, put Trump’s odds of sur­vival at 50/50. “If (special coun­sel Robert) Mueller man­ages to keep the in­ves­ti­ga­tion on track and presents com­pelling ev­i­dence, it is not un­think­able he has cleared enough smoke for Congress to trig­ger im­peach­ment,” he said. —Reuters

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