China funds reduce equity allocations as markets rally

[SHANGHAI] Chinese fund managers trimmed suggested equity weightings in their portfolios for the next three months as they grew cautious about mainland stock markets after a surge of around 20 per cent over the past month, a Reuters poll shows.

Fund managers lowered their suggested equity allocation to 85.9 per cent from last month's four-year-high of 86.3 per cent, according to a poll of eight China-based fund managers conducted this week.

Funds raised their suggested cash allocation to 9 per cent from 8.6 per cent, while recommended bond weightings remained flat at 5.1 per cent. "This bull run was fueled by fresh liquidity into the market," said a fund manager polled by Reuters.

"Many investors are using margin financing to fund their stock purchases, so with the leveraging ratio climbing, risks are increasing as well." The Shanghai Composite Index has jumped close to 30 per cent since Nov 21, when China unexpectedly cut interest rates to spur economic growth. Economists expect more policy easing in coming months as the government seeks to avoid a sharper slowdown.

For the year, China's main stock indexes gained nearly 50 per cent, making them the best performers in the world among major markets.

Reflecting concerns that prices may have moved up too much, too fast, six of the seven fund managers who gave forecasts for the SSEC three months from now predicted it would gain little additional ground from current levels or pull back slightly, while one saw a correction of 15 per cent.

The average recommended allocation for financial stocks rose from last month's 25 per cent to 28.8 per cent, the highest level since the poll started in 2007.

Suggested weightings for infrastructure-related stocks jumped to 7.1 per cent from 4.8 per cent last month.

REUTERS