Global funds cut stock exposure to 4-month low

Spooked by brewing trade tensions and a broad reversal in technology shares, global investors cut their equity exposure to a four-month low last month while reducing their holdings of US stocks to the lowest in nearly two years.

Reuters’ monthly asset allocation poll of 53 wealth managers and chief investment officers in Europe, the United States, Britain and Japan was carried out from March 12 to 27.

During this period, US moves to slap tariffs on steel and aluminium imports, and on up to $60 billion of Chinese goods, sent world stocks to six-week lows.

Investors have been worried that tit-for-tat retaliatory measures from China and a deterioration in world trade could hinder economic global, prompting a sharp risk-off move in markets.

“Trade tariffs ... while they should not end up in a fullblown trade war, risk weighing on market sentiment just when liquidity is diminishing and financial conditions are expected to tighten,” said Pascal Blanque, chief investment officer at Amundi.

In the poll, investors cut their equity holdings by almost 1 percentage point to 48.1 per cent of global balanced portfolios — the lowest level since November — while raising bond holdings by 2.3 percentage points to 39.3 per cent.

Within equity portfolios, managers cut their US exposure to 38 per cent, the lowest since April 2016.

US stocks ended the month down 4 per cent, hammered by trade war fears and worries about tighter regulation for the tech sector after a furore over the use of Facebook data by political consultants.

Peter Lowman, chief investment officer at Investment Quorum, said it had been a testing time for equity investors, and articulated the threat to the US economy and consumer of a trade war.

“US companies operating in China would be affected whether it is Apple or a US car manufacturer,” he said, adding that Chinese exports to the United States improved the American standard of living through the provision of cheaper goods.

A 62 per cent majority of poll participants who answered a question on the outlook for the US dollar in the event of a fullscale trade war said that it would weaken.

The dollar hit a five-week low against a basket of six other major currencies last month.

Raphael Gallardo, a strategist at Natixis Asset Management, said that while first-round effects, such as a reduction in the US trade deficit, might initially strengthen the dollar, ultimately it would weaken due to retaliation by US trading partners.

“More importantly, the trade war triggered by tariffs would end up weakening further the prospective rate of return on investment in the US,” he said.

The outlook for the dollar is complicated by the fact that the US Federal Reserve is raising rates, targeting at least two more hikes for 2018 after a 25 basis points hike last month.

A slim 56 per cent majority of poll participants who answered a question on this topic expected three rate hikes this year, but a third opted for four, saying the Fed was behind the curve.