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Big bet on US and UK equities

on July 10 | in All, Europe, Markets, US | by | with No Comments

The positive economic signals for the two regions support the commitment of the Asset managers in June.

The biggest managers of global assets strengthened their bet on riskier assets last month. A ‘poll’ conducted by Reuters with 51 major investment houses in the United States, Japan and Europe in June, found that 51% of their portfolios were allocated to equities. This value compares with 50.8% in the previous month and is the highest in the last two months. This increase was achieved with the decrease of investment in bonds which fell to minimum levels of two months: from 35.9% in May to 35.6% in June.

In contrast, liquidity and allocation to alternative investments such as hedge funds, remained unchanged at 5.7% and 5.6%, respectively. Just the real estate followed the trend of equities. The investment in this asset class has been strengthened to the highest level since June 2011 as investors take advantage of the returns that investment in commercial real estate have allowed.

The demand for riskier assets was fueled by central banks on both sides of the Atlantic as investors seek to maximize their returns in a context of historically low interest rates. To remember that in early June, the European Central Bank moved forward with new economic stimulus measures, including reducing its deposit rate to a negative value, while the U.S. Federal Reserve gave new evidence that interest rates should remain at historic lows until next year.

However, optimism was not with equities across all markets. The additional investment was mainly directed towards the stocks of the United States and United Kingdom, while the investment in securities listed on eurozone countries suffered a cut to the lowest level since December last year. Managers polled by Reuters justified this option with the fact that the economic recovery for the two regions have a better pace when compared to other developed markets such as Europe. Importantly, last month, the major stock market indexes in the United States signaled new record highs: that’s what happened with the S & P 500 and Dow Jones.

Despite the portfolios of the major managing houses seeking to take advantage of the expected economic recovery and rise of corporate profits, a significant number of investors who participated in the Reuters’ poll showed up fearful in relation to a possible market correction.

“I’m getting apprehensive about the increasing correlation between what asset classes are currently fairly valued and the gradual decrease in volatility in the markets for equities, bonds, commodities and forex to dangerously complacent levels”, said Rob Pemberton, Investments Director of the Wealth Manager British company HFM Columbus.

Investors also mentioned geopolitical shocks such as increased tension between Russia and Ukraine and the growing instability in the Middle East as well as unexpected movements in interest rates by major monetary authorities, as significant risks.

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