By Claire Milhench
LONDON (Reuters) - British investors rattled by global trade tensions are holding equity exposure near four-month lows, a Reuters poll showed on Thursday, though they see emerging market assets as benefiting from dollar weakness.
Reuters' latest monthly asset allocation poll of 15 UK-based investment managers was conducted between March 15-27, when U.S. President Donald Trump's moves to impose tariffs on steel and aluminium imports, and on some imports from China, sent world stocks (MIWO00000PUS) to six-week lows.
Investors are worried about tit-for-tat retaliatory measures from China and a deterioration in world trade that will crimp economic global.
"Nobody tends to win in a full blown trade war," said Peter Lowman, chief investment officer at Investment Quorum.
The poll showed managers kept equity exposure steady at 51.3 percent and raised cash levels to 5.9 percent, the highest since July 2017.
They also sought diversification by raising their exposure to alternatives such as hedge funds and commodities to 15 percent of their global balanced portfolios, the highest in at least five years.
Trevor Greetham, head of multi-asset at Royal London Asset Management (RLAM), said equities had taken a battering since the "melt-up" at the turn of the year, but it was normal for markets to remain edgy for a month or two after such a sharp reversal.
He has been adding to equity holdings, and sees the best opportunities in growth-sensitive emerging markets and Japan.
UK funds' exposure to emerging stocks was steady at around 22.4 percent, while Japanese equities rose to 11 percent of global equity portfolios, the highest since August 2016.
"Although growth is set to slow in China after a strong 2017, emerging economies should benefit from strong global demand and some dollar weakness," said Mouhammed Choukeir, chief investment officer at Kleinwort Hambros.
MSCI's benchmark emerging equities index (MSCIEF) is set to end March down around 2.4 percent, compared with a loss of 3.3 percent for world stocks.
Investors also raised their emerging market bonds allocation by 1.5 percentage points to 24.4 percent of their global bond portfolios.
DOLLAR OUTLOOK
Poll participants who answered a question on the outlook for the U.S. dollar were divided as to whether it would strengthen or weaken in the event of a major trade war, with 50 percent opting for weaken, while a third were undecided.
The dollar (DXY) hit a five-week low against a basket of six other major currencies in March.
Michael Ingram, chief market strategist at WHIreland Wealth Management, was one of those who plumped for weaken.
"Although the U.S. is a relatively closed economy, to the extent that this global trade war is a consequence of a U.S. policy decision, it is likely that a further risk premium will be required to hold U.S. dollar assets," he said.
Elsewhere, investors trimmed euro zone equity holdings by 1.2 percentage points to 16 percent, but some 88 percent of poll respondents who answered a special question did not think euro zone growth had peaked, despite lacklustre data.
"We think euro zone economic growth is rolling over from very high levels at the moment but this is unlikely to be the peak just yet as long as global growth remains strong," said RLAM's Greetham.
"Moreover, monetary policy is still very loose and with inflationary pressure, especially wages, still muted, the ECB is unlikely to tighten policy aggressively," he added.