MSCI’s global stock index hovered near record highs on Wednesday and was set in profit for the fifth straight month as most major economies continue to recover from pandemic lockdowns.
Fund managers and chief investment officers in the United States, Europe and Japan recommended increasing equity holdings to an average of 49.5% of their global model portfolio, from this year’s low of 48, in Reuters’ June 17-30 asset allocation survey. 7% in May.
“Equity valuations are absolute, but not relatively tight, compared to bonds, which means that in the medium term, there is no alternative to investing in stocks,” said Pascal Blanqué, Amundi’s group chief investment officer.
At the same time, the survey found that the allocation to fixed income securities has been reduced from this year’s high of 40.3% in May to an average of 39.6% of the balanced global portfolio.
“The performance outlook for traditional government bonds is bleak. Low initial yields mean potential returns are low; even in the event of an economic shock, there is limited scope for further decline in bond yields,” said Justin Onuekwusi, fund manager, Legal & General Investment Management.
When asked about the likelihood of a significant short-term correction in global equity and bond markets, a majority of fund managers said it was unlikely.
“We expect the markets to be on hold, the waters seem to have remained calm in the financial markets, and we’re going to have to see a big surprise to stop this quiet trend. But that doesn’t mean it actually does are strong. ” Currents could arrive soon, “said Amundi’s Blanqué.
“Communication from central banks, especially the Federal Reserve, about their throttling program will be crucial. But much would also depend on actual unemployment and inflation figures.”
However, a separate Reuters poll of bond strategists last week showed that a significant sell-off in bond markets is likely over the next three months as central bankers keep an eye on the exit door from the pandemic contingency policy. [US/INT]
In the latest survey, almost two-thirds of asset managers, or 14 out of 22, said in response to another question that investment decisions over the next three months would be driven by central banks’ forward guidance.
“The market has quickly shifted from concerns about rising inflation to what the central banks – and especially the Fed – will do. The inflationary momentum will continue for some time as temporary factors are replaced by more structural factors, ”noted the investment team at Generali Investments Partners.
“However, we see a high level of uncertainty in both the inflation and growth outlook over the medium term as the risk of a fiscal and monetary cliff increases. News from the Fed is likely to be the main driver in the summer.”
Graphic from the Reuters survey on the outlook for global asset allocation: https://fingfx.thomsonreuters.com/gfx/polling/yxmpjzrbgpr/Reuters%20poll-%20Global%20asset%20allocation%20outlook%20-%20June%202021%20 ( 2). png
When asked when the Fed will launch a taper plan for its $ 120 billion monthly asset purchase program?
But a majority said the US Federal Reserve would not reduce its monthly purchases until next year.
These views are in line with the results of separate Reuters surveys of economists and bond strategists. [ECILT/US]
“The Fed’s announcement of the throttling will likely come in August or September, but it will be some kind of advance notice. Monetary policy will remain expansionary and normalization is still a long way off, ”said a chief investment officer of a large US fund management company.
“We suspect that the debate among US politicians is more about whether the economy needs the billions of dollars in support or not. So we see this as positive for the financial markets and the economy.”
(Reporting by Tushar Goenka, polling by Indradip Ghosh in BENGALURU and Fumika Inoue in TOKYO; editing by Rahul Karunakar and Alex Richardson)
By Tushar Goenka