Global investors are ending 2012 with lower stock holdings and more bonds than 12 months ago, staying wary about the U.S. fiscal cliff despite a rally in most markets this year, a Reuters poll showed on Thursday.
The stalled U.S. fiscal talks grew more heated on Wednesday and threatened to become even more so Thursday when the action is expected to shift for the first time to the floor of the U.S. House of Representatives.
In response to renewed worries over the so-called cliff of harsh tax hikes and spending cuts that could damage an already weak economy, 55 global investors polled Dec. 6-18 across the United States, continental Europe, Britain and Japan on average also cut allocation to U.S. assets in December.
Compared to the same time last year, allocation to bonds is 4.4 percentage points higher — benefiting mostly investment grade corporates, while high-yield and government debt are down. Allocation to bonds is at the highest in at least three years in the Reuters global asset allocation poll.
Looking forward to 2013, a deal on the fiscal cliff — still the baseline scenario for most — is likely to push investors back towards stocks, fund managers said.
"I remain neutral on the markets while the uncertainty and risks surrounding the (fiscal cliff) are resolved," said Alan Gayle, chief strategist at Ridgeworth Investments.
RISKS, TOP PICKS
Investors see risks to global growth and the euro debt crisis as the biggest challenge to their investment positions next year, with the fiscal cliff a close third, the poll showed.
Asked which would be the best-performing markets next year, a majority said the U.S. dollar would be the top-performing currency, while under-valued euro zone stocks took the top spot for developed equity markets and China was the favorite among emerging stock markets.
"With the progressive decrease of political risk perception in Europe, investors should be able to focus more on fundamental aspects of investments. Italian or Spanish equity markets offer an attractive valuation with much more re-rating potential than core eurozone markets," said Nadege Dufosse, senior asset allocation manager at Dexia Asset Management.
British investors bucked the trend, greeting the year-end with a sharp increase in the amount they invest in shares over hopes that economic stability and rising corporate profits will return next year.
Their average allocation to equities in global balanced portfolios jumped to 52.3 percent in December, from 50.8 percent a month earlier.
"The risks facing markets in 2013 are more likely to be normal risks, as opposed to the systemic, potentially extreme risks which markets faced in 2012," said Alec Letchfield, chief investment officer for UK Wealth at HSBC Global Asset Management.
U.S. fund managers, however, had their most defensive stance so far this year, with average equity holdings hitting a more than 13-month low.
Japanese fund managers trimmed their asset allocations to shares slightly on concerns about the U.S. fiscal cliff, although they remained modestly optimistic about the global economic outlook in the medium term.
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