Global funds flee stocks, raise bond holdings to five-year high as growth fears mount

February 29, 2016 10:51 AM

Investors dumped equities in February as allocations hit the lowest level in at least five years and world stocks fell for the fourth month in a row, with fears of a global recession keeping risk appetite subdued. 

Equity allocations shrank by 1.6 percentage points to 46% of global balanced portfolios, according to a Reuters poll of 44 asset managers in Europe, Britain, the United States and Japan. Exposure to bonds worldwide rose by 2.4 percentage  points to 39.2%, the highest in at least five years.

The move reflects a major sell-off in global stock markets since the start of the year, with $55.7 billion pulled from global equity funds, according to data from Bank of America Merrill Lynch. This represents the longest outflow streak since 2008.

"Investors have been under a cloud of ...risk generated by the unusual amount of noise surrounding issues such as the Chinese economic slowdown, the collapse in the crude oil price and uncertainties surrounding the next move by the Federal Reserve," said Peter Lowman, chief investment officer at Investment Quorum, a UK-based wealth management firm.

The survey was conducted between Feb. 15-24.

During that period heavyweight bank stocks including Deutsche Bank and Credit Suisse came under huge pressure, as worries grew about how the financial sector would cope with the negative interest rate policies adopted by central banks in Europe and Japan.

Several investors argued that the impact of such central bank moves was weakening, tending to evaporate within days or weeks and now compounding rather than easing banks' and insurers' problems.

"Low or negative interest rates and further loosening of monetary policy cannot create growth or inflation on its own," said Jan Bopp, asset allocation strategist at Bank J. Safra Sarasin.

Citing a number of global economic risks, attendees at a meeting of G20 policymakers in China last weekend reiterated the need to use "all policy tools", but they agreed no new coordinated action to spur growth.

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