* Bonds raised to 40.3 pct, stocks cut to 45.5 pct
* Eurozone bonds raised to 13-month high, UK gilts cut
* Investors not yet positioning for EU break-up risk
* For poll data: reuters://realtime/verb=Open/url=cpurl://apps.cp./Apps/asset-allocation-polls
By Claire Milhench
LONDON, Feb 28 Global investors trimmed their
equities exposure in February, with many arguing that markets
had become too complacent about risks stemming from Europe's
election calendar after a recent blistering stock market rally.
A Reuters monthly asset allocation poll of 48 fund managers
and chief investment officers in Europe, the United States,
Britain and Japan showed overall equity exposure in global
balanced portfolios had been cut a fraction, to 45.5 percent of
portfolios from 45.8 percent in January.
The share of bonds rose to 40.3 percent from 39.9 percent in
January, the poll showed.
While the majority of participants expressed concerns about
upcoming elections in Europe, especially in France, there was
also a view that the reflation trade - a bet on economic growth
and inflation - had run ahead of itself.
Investors have piled into equities since Donald Trump's
election as U.S. president, betting that his pledges to cut
taxes and boost spending will spur growth.
"We think that the reflation trade is widely discounted and
that markets have become complacent to downside risks," said
Joost van Leenders, chief economist for multi-asset solutions at
BNP Paribas Investment Partners.
The poll was conducted between Feb. 13-27, a time when
global stocks hit record highs and the market
cap of the U.S. S&P 500 index surged past the $20
trillion mark for the first time.
However, Trump has given few details on how his programmes
will be implemented, prompting investors to marginally trim U.S.
exposure to 41.2 percent of equity portfolios.
"We simply don't know what Trump will do; his behaviour is
erratic and his recent executive orders have had poor
implementation," said Peter van der Welle, a strategist at
Robeco. "Tax reforms are announced but market patience is being
tested in this respect."
Unease is also growing about French presidential elections
due in April and May, with far-right candidate Marine Le Pen
seen winning 26 percent of the vote in the first round.
Although she is expected to lose in the second round, the
possibility of an upset cannot be discounted. Such
an outcome could pave the way for a referendum on France's
membership of the European Union (EU).
CAUTIOUS ON EUROPE
None of the poll participants who answered a special
question on the subject said they were positioning for an EU
break-up in the near-term, but several acknowledged this was a
European investors have cut euro zone equity holdings to
two-year lows, and some, such as Pioneer Investments, said they
were hedging risks through options strategies or holding gold,
which should outperform when volatility spikes.
"Uncertainty could generate short-term volatility – so our
approach to European equities is more cautious even if we see
positive fundamentals for the asset class," said Pioneer's
global head of multi-asset investments Matteo Germano.
Boris Willems, a strategist at UBS Asset Management, was one
of the few to remain relatively upbeat about European assets. He
argued economic recovery was gaining momentum, thanks to
European Central Bank policies and a weak euro.
"While geopolitical risks are clearly high ahead of major
elections in a number of core euro zone countries, we see these
risks as well flagged and to a degree, already reflected in
valuations," Willems said.
European equities touched 14-month highs in
February and are set to end the month up around 2.4 percent.
Despite the misgivings, euro zone equities rose to 17 percent of
global investors' equity portfolios, versus 16.7 percent in
Poll participants also continued to favour euro zone bonds,
raising these to 28.4 percent of their global bond portfolios,
the highest level since January 2016, and up from 27.9 percent.
But investors cut UK bonds by 2.5 percentage points to 9.6
percent, the lowest level since September 2016. UK inflation
gauges rose in February, with the Confederation of British
Industry noting a record increase in its measure of retailer
Another risk is the possibility that the Trump adminstration
will label China, Germany or another large trading partner as a
currency manipulator, implying that they keep exchange rates
artificially low to gain a trade advantage.
Such a formal declaration would require the U.S. Treasury to
seek negotiations to resolve the situation, a process that could
end in punitive tariffs on the offender's goods.
However, despite Trump calling the Chinese "grand champions"
at currency manipulation, investors questioned
whether any country met all three official criteria.
To be branded a currency manipulator, a country has to have
a significant bilateral trade surplus with the United States, a
current account surplus above 3 percent of GDP, and to make
persistent foreign currency interventions.
Analysts noted that rather than falsely suppressing the
value of the renminbi, Beijing has been actively supporting it
to maintain financial stability.
"China only ticks one of the boxes," said Robeco's van der
Welle, who believed Germany runs a larger risk of being named.
(Additional reporting by Maria Pia Quaglia Regondi and Hari
Kishan; Editing by Mark Trevelyan)