Global investors resumed their exit from euro zone bond markets in April, cutting their holdings of the bloc's bonds to their lowest level in over a year as sovereign debt woes re-emerged to hit Spain and Italy again.
The surveys of 55 leading investment houses in the United States, continental Europe, Britain and Japan showed holdings of euro zone bonds in balanced portfolios fell to 24.5 percent, compared with 26 percent in March and substantially lower than the 26.9 recorded at height of the crisis in November last year.
Bond holdings stabilised in the first quarter after the European Central Bank pumped almost a trillion euros of cheap three-year loans into banks, but debt sustainability worries resurfaced again in Spain this month as investors fretted about the government's exposure to its ailing lenders.
The approach of French presidential and Greek parliamentary elections on May 6 and Ireland's referendum on the European Union's new fiscal pact on May 31 all unnerved investors again and global stock markets retreated as well.
"Tensions are now rising again as the ECB's tonic wears off," said Dirk Wiedmann, Head of Investment at Rothschild Wealth Management.
On aggregate, the poll shows investors upping Japanese and UK bond holdings to compensate for euro zone reductions, while there was a small shift from government and investment grade allocations to speculative "junk" holdings within an overall steady U.S. debt exposure.
"Elections in the euro area may spark renewed political uncertainty amid the euro debt crisis," said Giordano Lombardo, group chief investment officer at Pioneer Investments.
France's Socialist contender Francois Hollande is likely to beat incumbent Nicolas Sarkozy in presidential elections on May 6. Greece, which has received two bailouts to prop up its indebted economy, will hold elections on the same day.
Elsewhere, investors' overall allocations to world equity and debt remained broadly stable in April despite a significant global stock market retreat from March peaks.
Equity holdings inched back to 52.3 from 52.5 in March, while investment in global bonds generally and cash nudged higher to reflect the more cautious mood.
Europeans Leaving Euro Zone?
European funds proved most bearish to both euro equity and bonds during the month and cut holdings to their lowest in over a year as the region's sovereign debt crisis was twinned with concerns grew about a deepening recession in the bloc.
A monthly survey of 16 asset managers based in continental Europe showed a typical balanced portfolio held 55.1 percent of bonds in the euro zone, down from 58.7 percent the month before.
Fund managers also cut back exposure to equities in the region to the lowest level in at least a year, with 28.5 percent in the euro zone, down from 29.1 percent in March.
British investors cut back on exposure to world stocks while upping cash as their appetite for risk fell amid the new euro worries and also on fears of a hard landing in China.
The average allocation to equities in balanced portfolios dropped more than a percentage point to 53.5 percent this month from 54.9 percent a month earlier, according to the survey of 15 investment managers in the UK.
"The main risks continue to be an imploding euro zone and a significant slowdown in Chinese GDP, with anything below 7 percent (growth) considered to be a hard landing by financial markets," said Robert Pemberton, investment director at HFM Columbus Group.
U.S. managers appeared more upbeat generally and were sanguine about world and even euro equities based on faith in strong corporate balance sheets and cheap valuations.
"Given all of the worries in the world that have made investors overly pessimistic about growth prospects, it has created some of what we would think would be very compelling valuation opportunities for longer-term investors in equities," said Brian Jacobsen, chief portfolio strategist at Wells Capital Management.
CNBC
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