Traders work at their desks in front of the German share price index, DAX board, at the stock exchange in Frankfurt, Germany, March 30, 2016.


LONDON European funds have cut their equity exposure to its lowest since July 2012, as doubt persisted about the effectiveness of central bank policy and political risks grew.

This month’s poll of 17 European asset managers was conducted between March 17-30, a period in which the European Central Bank cut interest rates and expanded its asset purchases to include corporate debt.

But investors dumped European equities and bonds as the ECB signalled that it was unlikely to cut rates further. Several poll participants wondered if central banks could achieve their objectives.

“The ECB action might have short-term positive implications for the credit universe, but it’s less likely to have structural positive implications on equities,” said Matteo Germano, global head of multi-asset investments at Pioneer Investments.

Germano noted that central banks were trying to support the real economy and a recovery in consumer prices, especially in Europe. But the effectiveness of these actions was likely to be limited without stronger fiscal policies and structural reforms.

“This is why we maintain an almost neutral view on risky assets, favouring relative positions to directional exposure to the market,” he said.

The caution was reflected across European portfolios.

Investors cut equity allocations to 43.4 percent and raised cash holdings to just over 8 percent, despite a global rally in stocks that pushed the MSCI World equity index .MIWD00000PUS up over 7 percent in March. It was the second straight monthly reduction in equity holdings, down from 45.7 percent in January.

“We think the environment is challenging for risk assets,” said Joost van Leenders, chief economist of multi-asset solutions at BNP Paribas Investment Partners, adding that he was underweight developed equities, particularly in Europe.

Within equity portfolios, asset managers cut euro zone stocks to 34.4 percent, the lowest level since November 2015.


The wary mood may be partly due to heightened political risks, as terrorist attacks in Brussels increased the chances Britain will vote to leave the European Union in a June referendum.

In the United States, meanwhile, billionaire Donald Trump took the lead in the race for the Republican party’s nomination for the U.S. presidential elections.

“Political risks are now firmly on our radar,” said Boris Willems, a strategist at UBS Asset Management.

“The lead up to the U.S. elections in November could well bring about bouts of heightened market volatility, and the discourse in the UK and elsewhere about the merits of EU membership could affect asset prices globally.”

Respondents were uncertain about the outcome of Britain’s referendum. Most thought the “remain” camp would win, but a vote to quit would hurt British markets, they said.

“If they choose to leave the EU, the currency will weaken dramatically, equity will take a battering, and the yield curve should steepen,” said Raphael Gallardo, a strategist at Natixis Asset Management.

(Additional reporting by Maria Pia Quaglia Regondi, editing by Larry King)