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A modest correction in global stock markets is likely by the end of this year, according to a slim majority of fund managers polled by Reuters who recommended trimming global exposure to equities in August in favour of bonds.
On Monday, MSCI's benchmark for global equity markets (.MIWD00000PUS) hit historic highs and European shares (.STOXX), with a monthly gain of more than 2 per cent, were on track to clinch their longest winning run in over eight years, buoyed by pandemic-related monetary and fiscal stimulus. read more
Still, fund managers and chief investment officers in Europe, Japan and the United States polled Aug. 12-30 slightly cut recommended equity allocations to an average 49.9 per cent of their model global portfolio from a 3-1/2 year high of 50.1 per cent in July.
The findings precede an expected inflection point in the Federal Reserve's monetary policy, with diverging views amongst officials on the precise timing of when a tapering in the Fed's $120 billion of monthly bond purchases will begin.
Asked about the likelihood of a correction in global equity markets by the end of this year, a narrow majority of respondents - nine of 17 - said it was likely, while the others said it was unlikely.
A separate Reuters survey of over 250 equity market strategists found this year's blistering global stocks rally is nearly over, and a correction was likely by end-year.
"A growth scare from rising coronavirus infections and a slowdown in reopening activity could spook domestic markets into a modest correction," Rob Haworth, senior investment strategy director at US Bank Wealth Management in Seattle, Washington, said.
"We would anticipate this is more of a growth scare than risk of a recession or significant slowdown given the amount of stimulus still working through the economy."
Of those who said a correction was likely, the poll median forecast stock prices to drop 8 per cent with predictions ranging 5 per cent-10 per cent in the latest survey.
But fund managers reiterated that most of the recent drops in stock prices proved to be opportune moments to increase exposure to risky assets taking advantage of rock-bottom interest rates and the resultant liquidity.
Asked about the most likely change in model portfolio recommendations over the next three months, 10 of 19 respondents said they would increase exposure to equities.
The remaining respondents said they would decrease exposure to either equities or bonds. None said they would increase their bond holdings.
"We might increase our equity exposure, but we are now in a stock picker's market. It is a question of 'what you own in the market rather than owning the market'," said Peter Lowman, chief investment officer at Investment Quorum in London.
Dec Mullarkey, managing director, investment strategy at SLC Management in Boston, reiterated the widespread view that for returns, equities are the only game in town.
