UK investors hold nerve on stocks as correction looms

March 04, 2013

RECORDER REPORT

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British investors are continuing to put more money in stocks even as many caution a market rally looks set to run into more trouble in the near-term, a Reuters poll has shown. A monthly survey of British-based chief investment officers and fund managers in which 13 institutions participated, showed the average equity allocation in global balanced portfolios edged 50 bps higher in February to 54.8 percent.

This marks a fourth consecutive monthly increase, largely at the expense of investment in bonds as money managers position themselves for a continuation of the stock market recovery that began in the second half of last year.

The average bond allocation dropped a percentage point to 25.7 percent while holdings of cash stood at 5.7 percent having increased from 5 percent in January. Property exposure was 2.4 percent and allocations to alternative assets including hedge funds, private equity and commodities stood at 11.4 percent.

Recent increases in allocations to stocks mirror a steady rise in equity markets since late last year with the S&P 500, up 11 percent since mid-November.

But Andrew Milligan, head of global strategy at Standard Life Investments said the likelihood of markets now pausing for breath is rising. "It would be no surprise to see a period of profit taking in the next few weeks," he said.

"However, we would expect such a sell off to trigger a further move into equities as long as investors remain confident that companies can deliver positive earnings growth in coming quarters."

The survey was carried out before elections in Italy on Tuesday in which anti austerity parties performed well, prompting fears of political gridlock and bouts of heavy selling on world equity markets. But respondents highlighted a lack of value in other asset classes such as fixed income that could buoy stocks further despite negative macroeconomic or financial shocks.