GLOBAL - European asset managers are expecting further slow downs in fixed income inflows, but are becoming more optimistic about Asian and European equities, reports show.
Fitch Ratings' European Fixed Income Investor Survey found 68% of investors expect lower inflows to the allocation following indications previously strong investments were starting to reverse in the fourth quarter of 2010.
Fitch's fund and asset manager rating group senior director Aymeric Poizot said: "Fixed income is at a crossroads as investors are getting more nervous with respect to duration risk and are increasingly seeing more appealing prospects in equity. Yields are low and many expect them to rise, either because of rising inflation and the prospect of higher interest rates, or sovereign sell-off."
However, structural demand for fixed income remains strong due to aging populations and regulatory trends, the report said. Within fixed income funds emerging market debt and corporate high yield continue to attract money as investors continue to seek higher yields, added Fitch.
Meanwhile, a separate survey by RBC Capital Markets suggests investor sentiment is becoming increasingly inclined towards Asian and European equities, with particular growth expected to come from smaller Asian economies such as Hong Kong, Singapore and South Korea. The asset allocation shift shows the impact of the sovereign debt crisis in investors' portfolios, said the firm.
European equity markets seem attractive with only 26% of respondents expecting the markets to fall - a decrease from 40% in the firm's last survey in May 2010. Concerns remain, with 21% believing their own country's debt capacity is already under pressure. However, 53% believe their government will not experience a funding shortfall during the next one to three budget cycles, the survey showed.
RBC co-head of global research Richard Talbot said: "The dramatic swings in sentiment captured by the RBC survey illustrate the ongoing volatility and complexity of economies and financial markets. Asset managers and investors need to be increasingly discriminating in their portfolio allocation, taking a more nuanced approach to investing, looking for alternative indicators and conducting appropriate analysis and risk management."
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