European funds' cash holdings at five-year high as markets recoil

European investors have raised their cash allocations to their highest in more than five years as market fears of a slowdown in China wiped millions off asset values. A Reuters poll conducted from September 18 to 28 found investors had cut overall equity allocations more than 3 percentage points to 45.1 percent, the lowest since the end of 2014. Asset managers remain worried, after a sell-off that has pushed global stocks to two-year lows.
"Because of the high uncertainty in the global equity markets, we could see more downward pressure in the short term," said Frank Griebel, fund of funds manager at DekaBank, adding he expected markets to recover towards the end of the year.
Matteo Germano, global head of multi-asset investments at Pioneer, does not expect the causes of the recent market turbulence to fade in the short-term. As a result, Pioneer is maintaining a cautious stance and a selective approach.
Worries about a further sell-off led investors to ramp up allocations to safe-haven government bonds to 51 percent, the survey of 19 European investment managers showed. US and Canadian bonds accounted for 28.1 percent, the highest in at least five years.
Asset managers remained particularly bearish on emerging markets - none of those surveyed who expressed a preference thought the assets were now cheap enough to consider re-entry. Emerging market shares are on track for a 5 percent fall in September, their fifth straight month in the red.
"The valuation is attractive, but we would consider an investment only once growth perspectives have stabilised," said Nadege Dufosse, head of asset allocation at Candriam.
The threat of a hard landing in China is dominating investors' minds after weeks of worse-than-expected economic data for the world's second-largest economy. But some pockets of opportunity remain.
Although managers cut their overall allocation to equities, they raised their exposure to euro zone assets to 34.3 percent, the highest since March 2015.
Boris Willems, a strategist at UBS Global Asset Management, said investor sentiment had taken a turn for the worse in August, but global economic growth fundamentals remained "broadly intact".
Consequently, UBS still prefers developed equity markets outside the United States, particularly the euro zone and Japan, citing the likelihood of more monetary easing from the European Central Bank and the Bank of Japan.