Investors boosted equity holdings in December as markets stabilise

London: Global investors boosted their equity holdings for the second month running in December and cut bonds, thanks to signs of stabilising stock markets and tumbling government bond yields, Reuters polls showed on Monday.

Surveys of 44 leading investment houses in the United States, Japan, continental Europe and Britain showed an average mixed-asset portfolio holding 56 per cent in stocks, up from 54.8 per cent in November. However, it still remained below the long-term average holding of almost 60 per cent.

Bond holdings fell to 33 per cent in December from 34.3 per cent the previous month, above the long-term average of around 32 per cent.

Cash rose to 5.4 per cent from 5.3 per cent.

A rise in the respondents' equity holdings comes as world stocks, measured by MSCI, rose nearly 20 per cent after hitting a 5-1/2 year low on November 21.

A round of central bank interest rate cuts worldwide and the introduction of fiscal stimulus packages in major developed and emerging economies have helped convince many investors that stock markets might bottom before long.

"We expect stock prices to rise, bolstered by various countries' measures to deal with the financial system and boost their economies," said Yuichi Kodama, senior economist at Meiji Yasuda Life in Tokyo.

A recent investor rush into safer government bonds, especially in the United States, pushed short-term yields below zero and long-term yields to multi-decade lows. This is also encouraging fund managers to move back into risky assets.

"Treasuries are the latest bubble," said Keith Wirtz, president and chief investment officer of US-based Fifth Third Asset Management.

'Market correction'

"Given the low yield levels today - macro concerns as well as liquidity preferences - government notes are overpriced. We see a market correction on the horizon."

US fund managers raised their stock holdings in December, reversing sales a month earlier during a hedge fund-driven sell-off.

The 12 fund management firms in the US poll had 61.9 per cent of their assets in equities in December, up from 60.9 per cent in November on a like-for-like basis.

These firms decreased their bond holdings to 29.6 per cent in December from 30.4 per cent the previous month, while holding 2.9 per cent of their assets in cash.

Continental European fund managers boosted their equity holdings to a four-month high and cut bond holdings.

The 11 investment houses in the poll cut bond holdings to 37.6 per cent from a 21-month high of 39.5 per cent in November.

Allocation to equities rose for the second straight month to 46.3 per cent, its highest since August. Cash holdings rose to 5.9 per cent from 4.3 per cent.

In Britain, fund managers boosted stocks to 63 per cent of their portfolios while cut back on bonds to 22.7 per cent. Cash dipped to 7.5 per cent.

Japanese fund managers also raised their global stock weighting. The average stock allocation for 12 fund managers rose to 52.8 per cent in December, from 52.3 per cent in November which had matched a three-year low hit in October.

Bond allocations ticked down to 42.2 per cent in December from 42.3 percent last month.