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The current run-up in stocks has at least another three months to go, according to fund managers in Reuters polls who kept their recommended equity exposure at last month’s more than three-year high and trimmed suggested bond holdings further.

Global stocks have been on a tear, buoyed by fiscal stimulus – mainly from the United States – the expected vaccine-driven economic recovery and robust earnings, putting the MSCI world equity index on track for its best monthly performance since November.

That was despite the continuing health crisis in many countries, especially India and Brazil, which are still facing challenges from the pandemic. The Federal Reserve also acknowledged the virus as a risk to an economic recovery.

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The April 14-30 polls of fund managers and chief investment officers in the United States, Europe and Japan showed, of the model global portfolio, equity allocations accounted for 49.8 per cent, the same as in March – which was a more than three-year high.

All but one of 24 fund managers in response to an additional question said the current bull-run in stocks would run for at least another three months, including five who expected it to last beyond six months.

“The factors supporting equity markets are the reopening of economies, the very accommodative central banks’ stance, abundant liquidity and strong flows, with retail investors in the U.S. recycling the stimulus checks into stocks,” noted the investment team at General Investments Partners.

“On the other hand, equities face very expensive valuations, and company margins may start to deteriorate due to the surge in input costs. These factors should balance each other for a while, and talks about a gradual normalization in policies later this year could eventually weigh on stock markets.”

Those expectations for the rally in stocks to continue were fuelled by unprecedented fiscal stimulus packages, with that optimism also reflected in recent releases of economic indicators.

Data on Thursday showed U.S. economic growth accelerated last quarter, its best first quarter growth since the 1980s, fuelled by massive government aid to households and businesses.

While the Fed took an upbeat view of the economy, it waved off policy shift talks and played down the expected rise in inflation as transitory.

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Still, nearly 80 per cent of the fund managers, or 19 of 24, responding to another question said Treasury yields were more likely to rise in the coming three months.

Global asset managers recommended cutting bond holdings to 39.5 per cent from 39.7 per cent last month, the lowest since February, 2019.

That is the first time in two years where suggested fixed-income allocations have accounted for less than 40 per cent of the model global portfolio for three consecutive months. It was a record high 45.5 per cent in October.

“Treasury bond yields, like equity markets, will be volatile over the rest of the year, but we are fully expecting them to rise gradually as inflationary pressures pick up and the Fed finally begins to reduce its stimulus packages and raise interest rates,” said Peter Lowman, chief investment officer at Investment Quorum in London.

“Equally, this will not be a short-term concern, it’s most likely a late 2022 to early 2023 story.”

Asked about changes to investment portfolios in the next three months, nearly three-quarters of 23 fund managers said they would roughly maintain the current risk positioning or reduce exposure to riskier assets.

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The remaining six suggested staying on the sidelines to capitalize on any pullback in equities from recent highs.

“Most of the economic momentum is already priced into risk assets, there is little scope to increase risk,” said Pascal Blanqué, chief investment officer at Europe’s largest asset manager, Amundi, in Paris.

“We prefer to keep the same level of risk exposure or to look for some reduction, as risks in the market are asymmetric at this stage.”

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