Chinese funds maintain equity allocations amid tighter regulations, boost cash

Chinese fund managers have kept their suggested equity exposure for the next three months unchanged from the previous month, remaining cautious amid tighter regulations and liquidity conditions, a monthly Reuters poll showed. In a bid to defuse asset bubbles and systemic risks, China has tightened its grip on credit facilities and shadow banking, a development that has been a major concern for investors.
The fund managers' suggested equity allocations remained unchanged from 76.3 percent a month earlier, which was the lowest in 6 months, according to a poll of eight China-based fund managers conducted this week. The fund managers have, meanwhile, cut their suggested bond allocations for the coming three months to 8.8 percent from 11.3 percent a month ago.
They have boosted recommended cash allocations to 15 percent, from 12.5 percent in the previous month. "It's still too early to see an across-the-board rebound given the correction in the bond market and the (tightening) regulations in the securities industry," said a Shanghai-based fund manager.
The stock market will tend to be rangebound given the still-tight liquidity conditions, said another Shanghai-based fund manager, adding there could be a chance the market will rebound if deleveraging efforts ease. The fund mangers surveyed held broadly mixed views on asset allocations for the next month, with three suggesting cutting equity exposure, two suggesting raising, while another three recommended the same equity exposure.
Average recommended allocations to financial and electronics stocks continued to rise, while those to consumer shares continued to fall, as some fund managers started to hunt for bargains and cut defensive consumer plays after stock valuations fell amid the sharp correction in the major indexes.
"The recent trend again proves the prominence of listed companies' performance, and we shall embrace blue chips with good fundamentals and refrain from small-caps and stocks with poor results," a South China-based fund manager pointed out. For the month, average allocations to electronics stocks were 25 percent, a record high since the poll was launched.
Average allocations to financial services stocks were 16.9 percent, up from 15.6 percent the previous month and the highest in 6 months, while those to consumer-related companies were down to 24.4 percent from 27.5 percent previously.