Global funds recommended cutting equity holdings in July to the lowest in four years and suggested keeping bond allocations unchanged from June, amid worries the coronavirus pandemic is hobbling a nascent economic recovery, according to a new Reuters poll.
Some business activity has picked up since May, but the latest data suggest the momentum has slowed on fears of renewed lockdowns and delayed re-openings caused by a resurgence in new coronavirus cases in many countries.
The US economy suffered its steepest decline on record in the second quarter, and Federal Reserve Chair Jerome Powell on Wednesday acknowledged the slowdown in activity.
He pledged stimulus support for years, pushing the dollar on course for its worst month in a decade.
Still, Wall Street’s main indexes were headed for their fourth monthly gain in a row, with the benchmark S&P 500 only about 4% below its February record high.
The Reuters July 15-30 asset allocation poll of 35 wealth managers and chief investment officers in Europe, the US, Britain, and Japan showed for the second consecutive month recommended allocations to equities was lower than bonds in the global balanced model portfolio.
That reverses the more common split in model global portfolios of 60% or above on average for equity allocations and 30% or below for bond holdings.
“Several businesses are still gutted, coronavirus infections are rising around the world and so are the fatality rates, which makes any predictions on economic recovery a gambling bet or at best difficult. Stock markets seem to be running on the former - on hope rather than any meaningful theory,” said a chief investment officer at a large US fund management company.
“Stocks are trading on expectations of a swift business recovery, but where is the recovery coming from? The changing landscape of the virus is even more complex than previously thought, with the first round in many countries not even done.
The poll showed a recommended cut to equity allocations to average 43.9% in the global balanced model portfolio from 44.2% last month, the lowest since July 2016.
Overall equity exposure is down 5.8 percentage points from the beginning of the year.
At the same time, the poll suggested keeping a key gauge of caution - bond holdings - at June’s 44.3%, the highest since the poll series started in early 2010.