Cyprus bailout prompts fund managers to cut equity exposure

Renewed market jitters after the decision to rescue Cyprus have prompted some of the world's top fund houses to cut their risk profile to minimise losses in volatile global equity markets.

Paul Chan, the chief investment officer for Asia ex-Japan at Invesco, said the group planned to cut its equity weighting by three or four percentage points from 57 per cent, mainly in its exposure in the US stock markets, and shift it to bonds.

"Euro worries have returned unexpectedly due to [Cyprus]," he said. "People aren't going to increase their risk profile now, especially after we've had such a good run-up [in equity markets] since September."

Cyprus has ordered banks to remain closed until today and scrambled to complete capital control measures to prevent a run on the banks by anxious depositors after the country agreed to a painful rescue package with international lenders.

While the bailout may save Cyprus from being forced out of the euro zone, it unnerved investors, who decided to lock in profits. Raymond Chan, AllianzGI's chief investment officer for Asia-Pacific, said: "There's more profit taking in the market, and depositors in Italy and Spain may also panic and take their money out."

Apart from the Cyprus debacle, the other worries for Hong Kong-based fund managers are the mainland's weaker-than-expected economy and disappointing corporate earnings.