By Rahul Karunakar and Tushar Goenka
BENGALURU (Reuters) – Global funds made a U-turn this month and recommended the highest equities exposure since February on recent COVID-19 vaccine progress, with a majority predicting the stock market bull run would last more than six months, Reuters polls found.
Recovering from last month’s sell-off, global stocks hit repeated record highs in November, with the MSCI’s broadest gauge of world stocks on track for its best month ever – up nearly 13%.
Rising COVID-19 cases, historic recessions and expectations for fragile economic recoveries notwithstanding, investors’ sentiment was boosted by vaccines making headway, a descending dollar and predictions capital markets would remain flooded with cheap cash. For a graphic on 2020 asset performance: http://tmsnrt.rs/2yaDPgn http://tmsnrt.rs/2yaDPgn)
That buoyancy in stocks and the search for better yields pushed fund managers and chief investment officers in the United States, Europe and Japan in the Nov. 12-30 poll to make a dramatic shift in recommendations – with equity allocations raised at the expense of every other asset.
“We have stayed on the sidelines previously, pointing to the growing disconnect between market moves and economic fundamentals. But it is now clear the global economic recovery will be supported by the vaccine news,” said a chief investment officer at a large U.S. fund management company.
“It is also clear equity markets will be cheered on further and the October sell-off provided us with the opportune moment.”
Stocks allocations accounted for an average 46.7% in November of their model global portfolio, up over 5 percentage points from 41.4% in October – the highest month-on-month jump since records began over a decade ago.
BULL RUN
Bond holdings accounted for 42.1%, compared with 45.5% last month, the lowest since February. The suggested cash buffer, property investments and alternative assets holdings were also lowered.
That shows a move away from the cautious approach fund managers have maintained this year, with a 3.4 percentage points drop in suggested bond holdings from October’s decade-high – the steepest fall since late 2017.
Those recommendations were based on recent progress of COVID-19 vaccines, according to all 19 fund managers who answered an additional question, with nearly 80% of them predicting the stock market rally would run for at least another six months.
“We have increased our overweight in stocks; the progress of various successful vaccines provides light at the end of the tunnel following this period of uncertainty,” said Trevor Greetham, head of multi-asset at Royal London Asset Management.
“The current acceleration of stocks has room to run further, as beaten-up cyclical stocks begin to rally on the expectation of a return to normality next year while policy remains loose. 2021 could be more about rotation than appreciation if bond yields are allowed to rise.”
Expectations for the global stocks bull run to race on lines up with the findings of a Reuters poll of equity strategists published last week. [EPOLL/WRAP] (For a graphic on global stock market outlook: https://tmsnrt.rs/3nT0J5r)
While equity strategists in that survey expected corporate earnings would return to pre-COVID-19 levels within a year, nearly two-thirds of 19 fund managers in the latest poll predicted it would take at least a year.
“Even with a successful vaccine rollout and central banks providing a backstop for markets, a more likely scenario is for the level of earnings to remain below their pre-COVID-19 earnings into 2022,” said Craig Hoyda, senior quantitative analyst at Aberdeen Standard Investments.
“This is especially the case if the new U.S. Democratic administration follows through on its promises to increase tech regulations which puts the S&P 500 mega-caps and their COVID-19 resistant earnings under pressure.”
(Reporting and polling by Rahul Karunakar and Tushar Goenka in BENGALURU and Fumika Inoue in TOKYO; Editing by Jonathan Cable and Alison Williams)
