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Global investors recommended a cut to equity exposure in September for the sixth month in a row as growth concerns driven by the continuing U.S.-China trade war pushed them to maintain their preference for bonds, a Reuters poll showed.

Financial markets were stressed once again on Friday after U.S. President Donald Trump’s administration said it was considering delisting Chinese companies from U.S. stock exchanges, raising worries about a further escalation in the trade war.

The Reuters Sept. 18-27 asset allocation poll of 37 wealth managers and chief investment officers in Continental Europe, Britain, the United States and Japan was taken ahead of Friday’s news, which broke the wave of optimism that trade tensions were easing – a view held throughout the month.

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Overall equity exposure in the global balanced model portfolio has fallen to the lowest since November, 2016, and more than four percentage points since the start of the year to average 44.3 per cent in September from 44.6 per cent in August.

Recommended bond holdings have risen to the highest since early 2013 at least and about three percentage points since January this year to average 42.1 per cent. Average allocations to cash are up nearly 1.5 percentage points.

“There are early signs that global economic momentum may be stabilizing, but the combination of slow growth and elevated geopolitical and trade risks still argue for a measure of caution,” said Alan Gayle, president at Via Nova Investment Management in Washington.

“While most of the challenges facing the global economy are self-inflicted – trade, Brexit, etc. – the odds of a miscalculation by elected officials is rising.”

Despite more than US$17-trillion worth of debt securities holding negative yields, when asked about the probability of a significant correction in equity and bond markets, global fund managers assigned a lower probability to bonds – 30 per cent, compared with 40 per cent for stocks over the coming year.

“While most government bonds are expensive, factors such as slower global growth, the restarting of QE in Europe, and regulatory-driven demand should restrain yields,” said Craig Hoyda, senior quantitative analyst at Aberdeen Standard Investments in Edinburgh.

That assessment lines up with a separate Reuters poll of fixed-income strategists and analysts on the sell-side published earlier on Monday. They slashed year-ahead major government bond yield forecasts to the lowest since Reuters polling began on these yields 17 years ago and said a return to significantly higher yields would take at least another five years.

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Global funds polled by Reuters were concerned stocks were very expensive and therefore more prone to a sell-off in the current scenario.

“October tends to be the most volatile month for stock markets and we wouldn’t be surprised to see a correction in stock markets especially if trade disputes escalate again,” Trevor Greetham, head of multiasset at Royal London Asset Management. “Global growth has slowed on trade concerns, but we think a recession is not imminent thanks to resilient consumer spending and a new round of monetary easing including the Federal Reserve and the European Central Bank.”

In the latest poll, more than 80 per cent of fund managers who answered a separate question said their asset allocation strategy would be driven mostly by the developments in the U.S.-China trade war, which has already hurt global manufacturing activity, and on the Fed’s policy path.

“The main driver of asset allocation will probably be the macro picture development: We are experiencing an increasing deterioration of manufacturing activity on a global basis,” said Thomas Hempell, head of macro and market research, at Generali Investments in Cologne, Germany.

“The Fed can continue to ease if needed and we continue to expect further rate cuts and a possible restarting of Treasury purchases in coming months to ease tensions in the U.S. money market also caused by the large fiscal deficit.”

While reflation of major world economies depends on there being no further escalation in trade tensions, the views of fund managers line up with what economists have said in Reuters polls for more than two years: that significant fiscal stimulus is needed along with monetary easing.

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“A slowing global economy and central bank policy easing has already been priced in by markets. So a loosening of the fiscal belt, particularly a material increase in government spending in Germany or a large infrastructure investment plan in the U.S., are triggers which would cause us to reassess our global asset allocations,” added Aberdeen Standard Investments’ Mr. Hoyda.

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