Global funds' concerns about US fiscal cliff, euro debt crisis ease

Last Updated: Tue, Dec 04, 2012 03:42 hrs

Ninety per cent of poll respondents expect a deal by year-end on the US fiscal cliff and 80 per cent consider Greece will still be in the euro zone by the end of 2013

Global investors increased their equity overweight positions to a 20-month high in November, boosting their holdings of riskier assets as they became less concerned about fiscal woes on both sides of the Atlantic, a Reuters poll showed.

Ninety per cent of poll respondents expect a deal by year-end on the US fiscal cliff and 80 per cent consider Greece will still be in the euro zone by the end of 2013, the poll of 56 leading fund managers showed.

The poll was conducted in a month that started with the re-election of Barack Obama and ended with a fresh deal to help Greece cut its debt and stay in the euro zone. W o rld stocks were largely flat on the month, having recovered in the second half from a sharp drop in the first half.

"All eyes are now on the fiscal cliff, where a 'muddling-through' until the end of Q1 2013 can be expected," said Boris Willems, a strategist at UBS Global Asset Management, which manages $90 billion.

"Overall, this should be a favourable environment for risky assets, where smaller corrections can be used to buy selected equities at more attractive levels," Willems said.

Globally, the portfolio balances were largely unchanged month-on-month in November overall, except for the increased overweight for equities compared to benchmarks, but with strong differences between regions, the survey of funds in the United States, continental Europe, Britain and Japan showed.

US investment firms took a more defensive stance, cutting their average stock holdings to a six-month low as European and Japanese firms raised them.

Although a large majority of U.S. investors said they expect a deal this year on the fiscal cliff, they cited concerns about the tough talks to settle the package of tax increases and spending reductions as the reason behind cutting back on equities, as well as worries about corporate earnings.

"We just don't think earnings growth globally is going to be that strong," said Steven Bleiberg, head of asset allocation at Legg Mason. He said profit margins in the United States are unsustainably high and are likely to revert to their historical average.

In Europe, investors cited the deal to cut Greece's debt and the European Central Bank's bond-buying plan - Outright Monetary Transactions - as the trigger for more stock buying.

"The ECB's announcement of its OMT programme in the summer removed a good deal of the near-term tail risk of a disintegration of the euro zone, going a long way to easing market concerns," said Alec Letchfield, chief investment officer for UK Wealth at HSBC Global Asset Management.

"We had been overweight equities prior to this announcement, however the news enabled us to increase our level of conviction and extend the position further."

In Japan, fund managers slightly increased their asset allocations to shares on the prospect of more monetary easing in the developed world and a pickup in China's economy.

Despite a more positive view on European and US fiscal problems, investors warned against complacency and stressed the many risks ahead for 2013, with several saying that a breakdown in talks on the fiscal cliff would deal a blow to markets.

Others also expressed concerns about China's economy and uncertainty about how the country's new leadership will address the challenges, although over 80 per cent said the once-in-a-decade leadership change would have no direct impact on their China or global asset allocation mix.

"In China, the outline of the reform programme for the incoming administration remains to be settled," said Andrew Milligan, head of global strategy at Standard Life Investments.

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