UK - Schroders has reduced its exposure to European equities on the back of "poor economic outlook" for the region and is likely to make further reductions in the next couple of months.
Schroders’ group asset allocation committee decided to maintain the firm’s overweight position in UK equities but reduced the exposure to European equities, investing the proceeds in cash, and decreased exposure to corporate and government bonds to reduce credit risk.
Schroders chief economist, Keith Wade, said: “Within equity markets, Continental Europe is particularly vulnerable and we have moved from a modest overweight position to neutral here.
“Given the poor economic outlook for the region and its reliance on global demand, European equities are likely to suffer more than others during a market downturn. As we do not expect to be overweight equities beyond the first quarter and are likely to make further reductions in the next month or two, the proceeds from the reduction in Europe have been put into cash.”
Wade added that corporate bonds did not offer “much scope for further upside” and could suffer from the same factors expected to take equities lower later in the year.
In addition, Schroders has upgraded its US GDP forecasts for 2005 and now expects interest rates to rise to 4% by the end of the year.
“Although we continue to recommend that portfolio managers hedge some of their dollar exposure back into domestic currency in non-dollar portfolios (as far as risk budgets and client guidelines allow), the prospect of higher interest rates obviously supports the dollar and this has reduced our conviction that the dollar is a one way bet in the short term,” Wade said.
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