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Funds sell UK for Continental Europe, Japan poll

LONDON: Global fund managers are selling UK equities and buying Continental European and Japan shares, but fewer funds were raising exposure to Pacific Basin equities, a survey by Merrill Lynch showed.

The poll, which this month questioned 67 institutions handling funds totalling 661 billion stg, showed fewer UK funds were looking to sell gilts, but they were raising cash holdings.

A balance of 69 percent of respondents were bullish on the Japanese equity market, from 49 percent last month. In the US, fewer managers were looking to reduce equity exposure.

Overseas bonds and deposits were moving back into favour with a 10 percent balance of respondents planning to increase holdings against five percent reducing last month.

Managers appear reluctant to reduce exposure to UK gilts. A balance of three percent intends to cut holdings against 25 percent last month, the poll showed.

UK index-linked bonds also saw increased interest with 13 percent intending to buy against six percent in March. Some 61 percent of those polled expected UK inflation to be higher in a year's time, from 49 percent in March. The survey said most fund managers remain optimistic on the outlook for the UK economy, with 85 percent expecting an improvement over the coming year.

But UK base rates are seen higher in a year's time by 39 percent of respondents, from 14 percent in March. On currencies, 79 percent were bullish of the dollar, up from 74 percent last month, with confidence in the mark and yen reduced slightly.

In the UK stock market, more respondents this month than last month preferred smaller companies. Cyclical stocks are also favoured, with engineering and general retailers the most liked sectors.

"It is interesting to note that managers have turned bearish on banks with the net balance falling to minus 6.5 percent from minus 2.9 percent in January," said strategist Bijal Shah at Merrill Lynch.-Reuter