The UK’s decision to leave the EU has created uncertainty in global financial markets, driving local financial specialists to favor bonds over stocks in the second half of the year, a survey by JP Morgan Asset Management showed.
About 58 percent of financial specialists responding to the poll prefer bond holdings for the coming months, up from 32 percent six months earlier, as downside risks intensify in the wake of “Brexit,” the firm said.
“After a tumultuous first half, the markets are braced for greater uncertainty ahead,” JP Morgan Taiwan vice president Alex Chio (邱亮士) said, calling for strategy adjustments by investors to rein in downside risks.
OTHER FACTORS
The US presidential elections, China’s economic slowdown and oil price volatility might also have a negative impact on the global economy and various investment tools, the survey said.
Only 13.8 percent of respondents recommended increasing equity positions, significantly down from 37.1 percent in the previous survey.
Stocks are generally considered riskier and more volatile portfolio assets than bonds because bonds are issued with the understanding that investors will receive payments at the end of the term and receive funds first in the event of a company’s failure.
The shift in preference reflects an increase in risk aversion and conservative sentiment in asset allocations.
A total of 27.9 percent of specialists are advocating equal holdings of bonds and stocks, slightly down from 29.4 percent six months earlier, the survey found.
The low-interest rate environment worldwide has helped dampen return expectations and increased the popularity of bond holdings, the survey said.
OPPORTUNITY
Paradoxically, the survey found that most financial specialists said that market volatility raises the chance of making money.
About 74 percent of respondents forecast returns would stand between 0 percent and 10 percent of investments in the coming six months, while only 10.8 percent predict losses could take up 20 percent of portfolios, the survey found.
PREFERENCES
Nearly 50 percent of respondents supported high-yield bonds, followed by emerging market debts at 26.5 percent and Asian debts at 22.2 percent, the survey said.
High-yield bonds are considered risky because they are rated below the investment grade, but pay higher yields to attract investors.
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