Funds recommended reducing equity exposure to its lowest level this year in May

BENGALURU, May 28 (Reuters) – Funds recommended lowest equity exposure this year in May, citing risks from the expected pull-and-push between reflation deals and reluctant central banks, but most Reuters polls said a short-term correction in Stock markets was unlikely.

While global stocks wobbled and technology-related stocks plummeted in May, the world stock index MSCI (.MIWD00000PUS) broke an all-time high and European stock markets were near record highs, helped by policymakers who dispelled inflation worries. Continue reading

Still, Reuters polls of 35 fund managers and chief investment officers in the United States, Europe and Japan from May 10-27 showed the lowest recommended equity allocations since December – averaging 48.7% of the global model portfolio, down from over three year highs of 49.8 % last month.

“We have entered an uncertain and risky environment – volatility is increasing and the correlation between stocks and bonds is becoming positive. It is important to be cautious and secure some profit on risky assets, ”said Pascal Blanqué, Amundi’s Group Chief Investment Officer, in Paris.

“Stocks will be perfectly fine as long as inflation doesn’t break through the anchored area. In stocks, investors should seek some protection against the bursting of the technology bubble. “

When asked about the likelihood of a correction in global stocks over the next three months, 57% of fund managers, or 12 in 21, said it was unlikely. While the remaining nine said it was likely.

“We still believe that the return potential of stocks is skewed upwards over a one-year time horizon,” said Craig Hoyda, senior quantitative analyst at Aberdeen Standard Investments.

“However, as the investment cycle matures, valuations rise and sentiment improve, expected returns should steadily decline.”

In response to another question, 70% of 20 money managers said that chasing yield trades would affect financial markets for the next three months rather than safe havens.

INFLATION

“Many of the factors that favor risky investments are and will remain in the (European) summer. The reopening of the economies will continue to support earnings recovery, ”said the Generali Investments Partners investment team.

“On the other hand, we are aware of growing inflation concerns and the potential impact on monetary policy. However, we are more likely to see these factors causing some volatility and possibly an acceleration of the rotation within stocks towards value-exposed markets. Sectors. “

Based on these views, the results of a separate Reuters poll of some 300 equity strategists showed that global stocks will rise modestly this year, with a near-term correction unlikely.

In the most recent polls, in response to another question, all 21 wealth managers said corporate earnings would rise for the remainder of the year, including over 65% of them expecting a significant increase. No one predicted a decline in corporate profits.

“We will see a significant increase in corporate profits. However, this is unlikely to be the case in all sectors, but more likely to be the case for those hardest hit by the lockdown, ”said Peter Lowman, chief investment officer at Investment Quorum.

“Given the likelihood that consumer spending will pick up in the next few months, there could be significant gains in profits in some of these consumer-facing sectors.”

Treasury bond yields rose Thursday on Thursday, buoyed by expectations for more bonds, following a report that showed US President Joe Biden would likely announce a budget of $ 6 trillion, the largest spending since World War II. Continue reading

The fund managers proposed increasing the allocation to fixed income to its highest level this year, accounting for 40.3% of the balanced global portfolio, down from 39.5% in the previous month, its lowest level since February 2019.

While comments from several Federal Reserve officials have recently attempted to calm inflation concerns, policymakers have also signaled a possible start of talks to end the central bank’s bond-buying program. Continue reading

“Inflation takes the driving seat of the markets. It’s hard to imagine that inflation would only pick up for a few months and then quickly return to around 2%. This is the beginning of a journey towards a period of higher inflation and lower growth compared to the current consensus, “added Amundi’s Blanqué.

“The consensus suggests a Goldilocks scenario. We believe this is a temporary rise in inflation. “

Reporting and surveys by Tushar Goenka in BENGALURU and Fumika Inoue in TOKYO; Edited by Rahul Karunakar, William Maclean

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