Global funds up stock allocations in August

Majority of wealth managers say time to buy EM assets after shakeout

Global investors raised their equity holdings to four-month highs in August, favouring Japan, a Reuters poll showed yesterday, with two-thirds also saying it was time to go back into emerging markets after another sell-off there.

Reuters’ monthly asset allocation poll of 50 wealth managers and chief investment officers in Europe, the United States, Britain and Japan was carried out between August 16-30, when global equities rose to their highest in nearly six months.

Unsurprisingly, investors raised their equity allocation to 48.3 per cent, the highest level since April. They cut bonds to 38.8 per cent and cash to 5.2 per cent.

Reduced EM holdings

They also reduced their emerging-market equity holdings to 11 per cent from July’s 12.2 per cent and their emerging-market debt allocation by 1.9 percentage points to 10.2 per cent after another sell-off across the complex.

MSCI’s benchmark emerging equities index is set to end August down over 3 per cent, having fallen over 9 per cent so far this year.

Emerging-market currencies also took another pounding, with Argentina’s peso, Turkey’s lira and the Indian rupee all plumbing record lows. Brazil’s real, China’s yuan and the South African rand came under sustained pressure as well.

Yet 63 per cent of poll participants who answered a question on the sector said it was time to buy emergingmarket assets.

“As the threat of much higher rates and a much stronger dollar are largely behind us, this general repricing should be seen as an entry point (excluding idiosyncratic situations) for long-term investors,” said Pascal Blanque, group chief investment officer of Amundi.

However, Michael Ingram, chief market strategist at WHIreland Wealth Management, remained cautious. He removed overweight emerging-market positions in his model portfolios months ago.

“EM credit spreads have moved up, but are still low on a multi-year basis. Any narrowing faces headwinds from the ongoing tightening of US monetary policy and a firmer dollar,” he said.

As the threat of much higher rates and a much stronger dollar are largely behind us, this general repricing should be seen as an entry point for long-term investors.”

Pascal Blanque | Group CIO, Amundi