European investors warming to euro assets, still holding cash

By Karin Strohecker LONDON (Reuters) - European investors, jittery over China's economic health and reverberations of the euro zone crisis, kept cash allocations near three year highs but lifted exposure to European assets as immediate concerns over the Greek crisis subsided. A monthly survey of 21 European investment managers found holdings of safe-haven cash in portfolios stood at 10.1 percent in June. That was within sight of last month's 11.1 percent allocation, the highest since July 2012 when the intensifying euro debt crisis prompted European Central Bank chief Mario Draghi's pledge to do "whatever it takes" to save the euro. A brutal six weeks for China's mainland stock markets and weaker data fostering doubts over the health of the world's second-largest economy, weighed on investors' minds in the poll conducted July 16-30. "We see the high volatility on the Chinese equity market together with uncertainties about the real growth of their economy as the biggest risk," said Koen Maes, global head of asset allocation at Candriam. Others voiced concerns that the euro zone could still suffer a crisis of confidence despite investors breathing a sigh of relief when Greece narrowly averted an exit from the bloc by striking an 11th-hour deal with lenders earlier this month. Despite those concerns, the survey showed fund managers had ramped their average recommended allocations in global bond portfolios for euro zone debt back up to levels last seen in March this year, before the newest Greek crisis peaked. Allocations to euro zone debt rose to 56.8 percent in July after hitting 51.8 in June -- the lowest level since January. Exposure to U.S. and Canadian debt bounced back from June's trough of 19.0 to hit 22.1 percent. Both regions gained at the expense of British debt, allocations to which fell by 0.4 percentage points to 3.3 percent, the lowest level in more than a year. Japanese allocations also nudged down to 4.7 percent while allocations to esoteric assets more than halved from 14.0 to 6.3 percent. Global equity portfolios also put more money to work in Europe. Allocations to euro zone shares rose by 0.4 percentage points to 32.7 percent while exposure to UK stocks rose to 10.6 percent, up 1.6 points and the highest in at least five years. "We maintain a moderate 'risk on' stance and have added risk back into our portfolios over the past month, primarily in equities which is where we see the most upside," said UBS' Boris Willems, who favoured non-U.S. equity markets. "We see better valuations than in the United States, central banks on an easing cycle and weakening currencies, which should help exports and earnings." Emerging market stocks suffered, with allocations to Latin America, Asia ex-Japan and emerging Europe all losing ground. Many emerging economies have been hit hard by falling exports and lower commodity prices and face the risk of a multi-year cycle of sluggish trade, economic growth and investment. Europe poll story (EUR/ASSET) U.S. poll story (US/ASSET) UK poll story (GB/ASSET) Japan poll story (JP/ASSET) China poll story (CN/ASSET) (Editing by Catherine Evans)