By Natsuko Waki
LONDON (Reuters) - The world's top investors kicked off the new year by cutting emerging Asian bond holdings to a 2-1/2 year low while keeping relatively high weightings in euro zone stocks, a Reuters poll showed on Friday.
The survey of 51 leading investment houses in the United States, Japan and Europe also showed investors were at their most optimistic on equities since December 2010, highlighting their confidence in the recovery led by developed economies.
The poll was taken between January 20 and 29, when a sharp sell-off in emerging currencies forced central banks in Turkey, South Africa and India to raise interest rates and piled pressure on other countries to follow suit.
Concerns about an economic slowdown in China, to which many emerging markets are geared, fanned risks of wholesale capital flight as the U.S. Federal Reserve withdraws the monetary stimulus that has helped buoy asset prices. But investors expect little collateral damage to developed economies.
"Taking into account the structural challenges in EM, current account deficits, weak commodity prices, declining profitability and a broad election agenda, pressure may last on emerging market assets," said Steyaert Steven, senior portfolio specialist at ING Investment Management.
"But is this the beginning of a more prolonged period of weak markets? We do not think so, at least not for global developed market equities."
Bond holdings in emerging Asia fell to 2.5 percent of the portfolio, its lowest since June 2011. Asian equity holdings stood at 6.8 percent, unchanged from December when they hit their lowest level since at least January 2010.
Investors lifted equity holdings in the euro zone to 18.6 percent, their highest since June 2011, while keeping North American weightings at 40.9 percent, unchanged from December's level which was the lowest since February 2012.
Overall equity holdings rose to 51.2 percent, the highest since February 2013 and in line with the four-year average. Bonds allocation ticked up to 36 percent. Cash was at an above average 6.1 percent.
The reading that measures investor overweight positions in equities on a scale of 0 to 3 rose to 1.2 this month, the highest since December 2010.
"Equity market fundamentals continue to improve but the concern now is that valuation levels are beginning to look stretched," said Robert Pemberton, investment director at HFM Columbus.
"Equities need to see a strong and sustainable recovery in earnings growth to make further significant progress."
U.S. fund managers began 2014 by slightly adding to their equity holdings. But no aggressive buying was seen after Wall Street's bumper gains in 2013.
Continental European funds cut equity and debt exposure to emerging Europe and Asia. Investor holdings of emerging Asian equities fell to 5.6 percent of portfolios, the lowest since June 2010.
Japanese fund managers trimmed their exposure to equities from the two-year high hit in December on the view that valuations were too high.
British investors lifted euro zone equity holdings to their highest level since at least June 2012 and cut North American bond holdings.
(Additional reporting by Jemima Kelly in London, Rahul Karunakar in Bangalore, David Randall in New York and Ayai Tomisawa in Tokyo; Editing by Catherine Evans)