Investors cautious as second half starts

Investors have become a little more upbeat heading into the second half of the year, lifting stock allocations from 2011 lows but remaining cautious with plenty of safe-haven cash and bonds.

They also lifted their exposure to euro zone stocks and bonds in the month, despite the ongoing debt crisis.

Reuters asset allocation polls released on Thursday showed leading investors across the world recovering from May’s retrenchment, brought on by fears over a stagnant U.S. economy, potential over-heating in China, and the euro zone debt crisis.

On average, 58 fund firms in the United States, Europe excluding the UK, Japan and Britain held 51.5% of a balanced portfolio in equities, up from 50.7% in May.

Bond holdings were at 35.1%, down slightly from 35.5% a month earlier. Cash was at 4.9%, down from 5.2%.

The overall picture suggested that investors have overcome some of their worst fears but are far from bullish.

June’s equities allocation, for example, is far closer to what it was last year before the Federal Reserve launched its second asset-buying quantitative easing program (QE2) than it was in the immediate months that followed.

QE2, which ends on Thursday, provided a major sentiment boost for investors.

“The investment environment continues to be highly uncertain,” said Yoshinori Nagano, senior strategist at Daiwa Asset Management in Tokyo.

Investors are being battered by the Greek sovereign debt crisis, in which a default could spread into a wide range of other assets through banking losses and contagion into other euro zone countries.

Despite this, the euro zone saw more interest from investors in June, with holdings of both euro zone stocks and bonds rising.

This appeared to be based on a belief that policymakers would do what was necessary to keep the crisis contained.

“Ultimately, (Greece) cannot be allowed to fail because this could cause a contagion effect across peripheral Europe,” said Neil Michael, executive director of investment strategies at London & Capital.

REGIONALLY

U.S. fund managers added to equities for the first time in two months and decreased bond exposure.

Fifteen U.S.-based fund management firms held an average of 63.9% of assets in equities, up from 61.6% a month earlier and 63.3% in April.

Bond holdings decreased to 28.5% in June from 30% in May and 29% in April. Cash exposure remained at 3% in June.

European investors raised equities and cut cash for the first time this year while they held their bond holdings largely steady.

The survey of 17 Europe-based asset management firms outside Britain showed a typical balanced portfolio holding 47.6% of equities in June compared with 45.5% in the previous month.

It held 39.0% in bonds compared with 39.5% in May. Cash holdings fell for the first time since December to 7.1% from 8.8%.

Japanese fund managers’ global bond weighting was near a record high while their stock weighting sunk toward a 12-year low.

The poll of 13 institutions found the average weighting for global bonds was 49.5%, close to the 49.6% logged in March and May, which was the highest since the survey began in February 1995.

Their average weighting for global equities edged down to 42.6% in June after a three-month high of 43.0% in May. Cash positions rose to 4.8% this month from the three-month low of 4.5%in May.

British fund managers trimmed equity holdings and lifted bonds.

The 13 UK-based management companies polled held 52% of their portfolios in stocks, down from 52.0 in May. Bond holdings rose to 23.3% from 22.9%.

Cash weightings rose slightly to 4.5% from 4.4%.

© Thomson Reuters 2011

U.S. June auto sales sluggish for second month in row

Nelson Ching/Bloomberg

Daniel Akerson, chairman of General Motors Co.

General Motors Co and Ford Motor Co both reported weaker-than-expected U.S. sales gains in June as they again dialed back deals for car buyers despite the shaky economy.

GM also tempered its full-year forecast for the industry as some consumers were still holding back on buying cars.

Tightening supplies of vehicles after the March 11 Japan earthquake have emboldened some automakers to raise prices, a strategy that analysts and investors said has backfired in May and June.

“The consumer’s still struggling out there,” said Gary Bradshaw, a portfolio manager with Hodges Capital Management, which owns Ford shares. “Car buyers have paused a little.

“These car prices have really gone up an awful lot,” he added. “They probably need to tone that back a little bit if they can. I know their commodity costs are rising, but there’s a fine line in there.”

GM and Ford trimmed the incentives they offered buyers in June to buy new cars by 2% and 2.4%, respectively, from May, according to TruCar.com.

Monthly car sales figures are among the first snapshots of consumer demand. Investors hope the industry can reverse May’s disappointing results, which raised fears the U.S. recovery was running out of steam.

Investors received good news more broadly as the pace of growth in the U.S. manufacturing sector picked up for the first time in four months in June, a sign of optimism for the sputtering economy.

However, GM’s U.S. sales chief, Don Johnson, pointed to the impact of the Japan crisis as the main driver of June’s disappointing auto sales results. .

“Some consumers have decided to sit on their hands and delay their purchasing,” he told reporters on a conference call. “We view this as temporary.

“It is much less to do with the economy than it is simply with the levels of inventory that some of our competitors, particularly our Japanese competitors, have. They’re reaching the low point of their inventory during this crisis,” Johnson added.

MAY AND JUNE SUFFER

May and June were the months analysts said the industry, especially Japanese automakers, would suffer most on sales due to the earthquake and tsunami which caused parts shortages and tighter availability of cars.

“We think the recovery will get back on track despite the slow housing market and the stubborn levels of unemployment,” Johnson said.

However, he said the U.S. auto industry was likely to finish at “the lower end” of the company’s forecast for 2011 sales of 13 million to 13.5 million.

GM reported sales last month, excluding four brands it dropped, of 215,358 cars and trucks, up 10.5% from last year. GM sold or discontinued Pontiac, Saturn, Saab and Hummer.

Several analysts had expected GM to report a gain in the range of 11% to almost 20%. The U.S. automaker also came in below expectations in May.

Ford’s sales rose 13.6% to 194,114 vehicles, an outcome that also fell short of several analysts’ estimates. Chrysler sales rose 30%.

Nissan Motor Co reported an 11.4%  jump in sales, falling short of some analysts’ estimates of a rise of more than 24%. Al Castignetti, head of the Nissan brand in the North America, said he was “disappointed” by the results.

U.S. auto sales in June were expected to rise only 2% from May — but by a healthier 8% on a year-over-year basis. The May figures reflected tighter inventory caused by Japan’s earthquake, which caused vehicle prices to spike and led more consumers than expected to hold off on buying cars.

For June, the average forecast of 41 economists surveyed by Reuters was for a sales rate on a seasonally adjusted annualized basis of 12 million vehicles, up from 11.1 million last year and 11.8 million in May.

That is below an average of 13.1 million new light vehicles sold on an annualized basis in the first four months of the year, before the Japan earthquake significantly affected sales.

In Japan, new vehicle sales in June slumped by more than a fifth, while in South Korea Hyundai and Kia Motors extended their strong run with double-digit growth. French car sales fell for the third straight month, while Brazil car sales rose 15.9%.

GM shares were up 1.2% at $30.73 Friday afternoon, while Ford shares were up 1.8% at $14.04. The broad S&P 500 Index was up 1.1%.