Chinese fund managers boosted their suggested equity exposure for the next three months as major indexes pierced key resistance and market sentiment picked up on further signs of an expanding economy, a monthly Reuters poll showed. The recent market rally was bolstered by strong corporate earnings that have raised hopes economic momentum will remain solid through the rest of the year, defying analysts' expectations for a gradual slowdown.
Sentiment was also underpinned by signs that Beijing is stepping up efforts to restructure the country's lumbering and often inefficient state-owned enterprises (SOEs) by opening the door to more public and private investment in the long-protected sector.
The fund managers raised their suggested equity allocations to 76.9 percent, from 75 percent a month earlier, according to a poll of eight China-based fund managers conducted this week. The fund managers have, meanwhile, kept their suggested bond allocations for the coming three months unchanged at 10 percent.
They have cut recommended cash allocations to 13.1 percent for the next three months, from 15 percent the previous month. "The market could maintain its upside momentum, after the benchmark Shanghai Composite Index in late August breached the 3,300 mark to hit its highest in 20 months," a South China-based fund manager said.
Analysts say market bears would capitulate if the Shanghai Index can hold firmly above the 3,300 point mark - a level at which there has proven to be stiff resistance, with three failed attempts to breach it over the past nine months. There have only been fleeting breaches of the 3,300 point level since 2015, with the index quickly falling back each time.
The fund managers surveyed held mixed views on asset allocations for the next month, with four suggesting the same level of equity exposure, three suggesting an increase, while one recommended a cut. While average recommended allocations to most major sectors were little changed, those to metals shares continued to rise for the third straight month to 8.8 percent - their highest in seven years - reflecting a sustained rally in the prices of upstream resources and industrial products.
Average recommended allocations to electronics and technology stocks were raised to 23.8 percent from 22.1 percent, according to the poll. The value investing strategy that attaches more importance to enterprise competitiveness, earnings growth and valuations could continue to dominate among market participants in the second half, a Shanghai-based fund manager said.
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