U.S., UK investors slash euro zone debt

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Mar 5, 2010
LONDON: U.S. and British institutional investors walked away from euro zone bonds during November as fears for the future of the currency bloc grew, Reuters asset allocation polls showed on Wednesday.

The surveys of 59 leading investment houses in the United States, Europe ex UK, Britain and Japan also showed an increase in exposure to stocks, mainly as a result of demand for emerging market equities.

Suggesting caution still reigns, however, cash holdings rose to 6.4 percent from 5.9 percent and were at their highest for the year.

Overall, the polls showed a model mixed-asset portfolio held an average of 50.6 percent of assets in equities, up from 49.5 percent in October. Bonds fell to 35.3 percent from 35.9 percent.

One key move in the allocations was the withdrawal of U.S. and UK investors -- the so-called Anglo-Saxons -- from crisis-hit euro zone debt.

"The political and policy paralysis at the heart of Europe has raised the specter of a global recession, and greater uncertainty and volatility for asset markets," said Neil Michael, executive director of investment strategies at London & Capital.

Globally, the bonds allocation to the euro zone fell to 26.9 percent from 27.4 percent. But this masked a much greater U.S. and UK retreat.

U.S. investors moved to 17.6 percent from 19.1 percent and British counterparts sliced their exposure to just 8.9 percent from a previous 11.9 percent.

European and Japanese investors raised their exposure to euro zone debt slightly, but not in a way that could be considered a sign the crisis was ending.

"The greatest risk we perceive today remains the tail risk on the (euro) area. The contagion to core countries like France has not stopped yet," said Nadege Dufosse, senior asset allocation manager at Dexia Asset Management. (Reuters)