European funds reduce emerging Europe equity exposure - Reuters poll
By Joshua Franklin
LONDON (Reuters) - European fund managers cut their exposure to emerging Europe equities to the lowest in more than a year this month in the wake of political turmoil in Ukraine, a Reuters survey showed on Friday.
Investors also increased the cash pile in their portfolios to the highest since August 2012 and cut overall equity positions, according to the monthly poll of 19 asset managers in continental Europe.
The survey was conducted on February 19-26 at the height of months-long political protests in Ukraine that eventually led to the removal of President Viktor Yanukovich.
The prospect of military conflict is spooking investors there with the Ukrainian hryvnia and the Russian rouble hitting record lows this week.
With emerging Europe highly exposed to Ukraine's political and financial fallout, investors cut their equity holdings in the region to 1.9 percent, their lowest since September 2012.
The weighting of debt holdings in the region stood at 1.4 percent, rising for the first time in three months.
Events in Ukraine have further dampened appetite for riskier emerging market assets, which were already under pressure on concerns that the U.S. Federal Reserve's decision to trim back its stimulus programme would crimp fund inflows to emerging markets.
Some countries with high reliance on external capital, such as Turkey and South Africa, have raised interest rates.
"Emerging markets with high inflation and a devaluation of their currencies are raising their interest rates to stop the capital outflow," said Peter Bezak, portfolio strategist at Bank J. Safra Sarasin.
"Higher rates in turn hurt the economic sentiment and economic growth and lead to further devaluation."
The poll also showed that European fund managers increased their stakes in North American equities for the first time since November to 35.6 percent.
U.S. stocks hit record highs this week after a blip in January.
However, some fund managers worried about the impact of a possible extended economic slowdown in the United States after extreme weather conditions weighed on recent data.
"The greatest risk to our global balanced portfolio strategy would be a U.S. economic momentum weakness extending beyond the current weather-related slowdown," said Jean Médecin, a member of the investment committee at Carmignac Gestion.
European investors were becoming more optimistic on Asia. They stepped up their holdings of Asian equities to 5.9 percent in February for the first time in 13 months.
That was despite an overall reduction in stocks in investors' global portfolios to 47.6 percent, the lowest since September 2013.
Fixed income holdings ticked up, rising to 37 percent of investors' total portfolios. Half of this was government debt, unchanged from January.
The weighting of euro zone debt rose to a four-month high, a vote of confidence for the single currency block as it looks to regain investor trust.
Latin American bond weightings halted an eight-month downward trend, rising slightly. Market turmoil in Venezuela, Brazil and Argentina has hit investor confidence in the region, dragging debt holdings by European investors to their lowest since June 2011.
(Editing by Susan Fenton)
