By Sujata Rao
LONDON (Reuters) - European investors cut U.S. stock and bond holdings in October and allocations for European assets as they focussed on monetary policy divergence between the United States and elsewhere.
A Reuters poll conducted from Oct. 19 to 28 found that investors had further trimmed overall equity allocations to new 10-month lows of 44.9 percent.
Allocations were cut 3 percentage points in September amid worries about the world economy, slowing Chinese growth and the timing of the first U.S. rate increase in almost a decade.
The October poll was held before the U.S. Federal Reserve signalled it might raise interest rates in December, despite relatively disappointing economic data and the possibility of emerging market crises.
The first estimate of third-quarter U.S. growth, released on Thursday, showed a 1.5 percent annualised expansion, less than the expected 1.6 percent.
"Recent macroeconomic data and even our forecasts for the medium- (to) long-term are not that exciting. We recognise risks are on the downside, but we think the case for `risk on' remains in place, accompanied by hedges," said Matteo Germano, global head of multi-asset investing at Pioneer Investments.
"We have increased our preference for European equities versus U.S. equities," he said.
Asset managers cut U.S. equity allocations for the third straight month to 36.3 percent, or 1.3 percentage points less than September's. The average weighting to U.S. bonds fell more than 2 percentage points to 25.8 percent, the poll showed.
But they increased holdings of euro zone stocks by almost 1 percentage point to 35 percent, the highest since March. The share of UK equities jumped 2 percentage points to 9.7 percent.
The growing skew away from the United States and towards Europe in portfolios coincides with hints from the European Central Bank about an extension of its asset-purchase programme, or quantitative easing (QE).
Elsewhere, China last week cut interest rates for the sixth time in less than a year, and many expect the Bank of Japan will also extend bond buying.
The predictions of more stimulus and relative stability in China after a turbulent summer have boosted world stocks, which are set for 8 percent gains in October - their biggest in four years - after two months of declines (MIWD00000PUS).
European stocks too are up 8.3 percent, heading for their biggest monthly rise in more than six years (FTEU3).
"In the euro zone and Japan, accommodative central bank monetary policy and a positive outlook for corporate earnings growth should lend support to equity markets," said Boris Willems, a strategist at UBS Global Asset Management.
Expectations of ECB bond-buying drove a 7 percentage-point jump in euro zone debt allocations to a seven-month high of 57.4 percent. Bonds from emerging Europe also benefited, their share rising to 4.3 percent, up more than 3 percentage points from September levels.
Investors remain worried about emerging markets, but beaten- down asset valuations may be luring some buyers. Allocations to stocks and bonds from all developing regions saw rises compared with September, in some cases to multi-month highs.
"We are still negative on emerging markets, both on the equity and bond side. However, our market breadth indicators for EM are suggesting that prices may be bottoming," said Donatella Principe, head of institutional business at Schroders (L:SDR) Italia Sim.
The fund recently took profits on several short emerging debt positions, Principe added.