Chinese fund managers increased their suggested equity allocation for the next three months, after recommendations hit a 10-month low in February, although sentiment remains lukewarm as concerns about China's economy grow, according to a Reuters poll. March's average recommended stock weightings rose to 81.3 percent from 81.1 percent a month earlier, according to a poll of eight China-based fund managers conducted week of March 24.
Funds cut allocations to bonds to 3.9 percent from 6.2 percent, while increasing allocations to cash to 14.9 percent from 12.7 percent. "My concern now is that the economy continues to slide, which may cause changes to the fundamentals of many industries," said a fund manager based in southern China who declined to be identified.
China's manufacturing engine contracted in the first quarter of 2014, a preliminary private survey showed last week, raising market expectations of government stimulus to arrest a loss of momentum in the world's second-largest economy this year. Weak economic indicators have prompted many international investment banks to lower their 2014 China growth forecasts. The Royal Bank of Scotland Group PLC trimmed its prediction for GDP growth to 7.7 percent from 8.2 percent in the middle of March.
The CSI300 index of the leading Shanghai and Shenzhen A-share listings has lost more than 7 percent so far this year as concerns about China have mounted. Most respondents to Reuters' fund poll said that China's slowing economy was a near-term concern, while some considered imminent bond defaults and the liberalisation of interest rates to be priorities.
China saw its first ever domestic bond default earlier this month, when Shanghai Chaori Solar Energy Science and Technology Co Ltd failed to make an interest payment on a bond it issued in 2012. A Shanghai-based fund manager was more positive, however, and suggested that bond defaults and the maturing of a large number of trusts would strengthen the market's ability to withstand risk and improve the existing interest rate system.
For next month, two-thirds of the fund-managers surveyed said they would not change their recommendations for cash, equity and bond holdings positions, although one-third would cut their suggested equity allocation. This month, allocations for consumer and electronics company stocks have fallen, while financial services, metal and machinery have risen. Hype for smaller-cap stocks has cooled, as investors turned their attention to bluechip companies.
Average recommended allocations to stocks in consumer and electronics firms were 24.1 percent and 13.8 percent, a fall from 27.6 percent and 15.0 percent last month. For financial services, the average recommended allocation rose to 5.6 percent this month from 3.3 percent last month. The average recommended allocation for real estate stocks rose this month to 5.6 percent from 3.3. percent in March, as fears that banks would reduce real estate loans waned.
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