By Rahul Karunakar and Tushar Goenka
BENGALURU (Reuters) – Global fund managers recommended the lowest exposure to equities and the highest share of bonds in portfolios in over a decade this month, citing risks posed by the U.S. election and economic fears stoked by resurgent coronavirus pandemic, a Reuters poll found.
The run-up to the Nov. 3 presidential election, new national lockdowns in Europe’s biggest economies, and record daily U.S. coronavirus infections triggered the worst global stocks selloff in months. Nearly $2 trillion in value was wiped out on Wednesday alone.
Since the pandemic began, fund managers with over $4 trillion in assets under management whom Reuters regularly polls, cited the second wave of infections now underway as a top risk and have remained cautious throughout the year.
Keeping with that strategy, the Oct. 15-29 poll of 33 wealth managers and chief investment officers in Japan, continental Europe, Britain and the United States showed recommended bond holdings have risen over 5 percentage points since January this year to average 45.5% this month.
That is up from 44.7% in the previous month, already the highest since comparable polling began over a decade ago.
At the same time, overall equity exposure in the global balanced model portfolio fell further in October to average 41.4% from 42.7% in September, the lowest since early 2010.
That average has plunged more than 8 percentage points since the start of the year.
“There are not many reasons for us to be bullish on stocks. All the upcoming events point plainly to more pain for equity markets,” said a chief investment officer at a large U.S. fund management company. “There is a high risk to the already fragile economic recovery from the resurgent COVID-19 pandemic,” he said.
“Forget a V-shaped recovery, the W-shaped scenario for major world economies has become the consensus in the market.”
That echoes the findings of a separate Reuters poll of roughly 500 economists who saw the new wave of coronavirus cases posing a high risk of halting the current global economic recovery as early as this year.
In the latest poll, fund managers once again chose the pandemic as the top risk in response to an additional question.
“Equities have priced in a COVID-19 vaccine later this year, but if that is significantly delayed, exhibits low clinical efficacy or significant side-effects then we could see a substantial market correction,” said Benjamin Suess, director at UBS Asset Management in Zurich.
But more than half of the 21 fund managers, who answered a question about the biggest driver for the stock market, said further U.S. fiscal stimulus would be the top factor for the remainder of the year, with many predicting a buying opportunity for equities if it passes.
“One can view the outcome of the U.S. election as a trigger for markets rather than a driver,” said Craig Hoyda, senior quantitative analyst at Aberdeen Standard Investments in Edinburgh. “Once the outcome is certain, markets – in their role as forward discounting mechanisms – will price in the expected path of fiscal policy.”
Still, 18 out of 21 fund managers who responded to a question about a potential impact of a delayed or contentious U.S. election outcome, said it would prompt a significant sell-off in the immediate aftermath.
“Anything is still a possibility should the result be close. U.S. stimulus negotiations would become even more tricky if there is an unclear election outcome and tip markets back into the sort of chaos endured earlier this year,” added the U.S.-based global fund manager.
A deep selloff in March wiped a third off the value of U.S. stock indexes as the pandemic slammed markets and locked down economies.
Now, with less than a week to go before the U.S. presidential vote, a resurgence of COVID-19 cases is bringing new curbs and financial markets jitters.
(Reporting and polling by Rahul Karunakar and Tushar Goenka in BENGALURU and Fumika Inoue in TOKYO; Editing by Ross Finley and Tomasz Janowski)