(For accompanying table, click on )
By David Lin and Alice Woodhouse
SHANGHAI/HONG KONG, Dec 31 (Reuters) - Chinese fund managers recommended increasing allocations to equities and cash for the next three months, while cutting allocations to bonds to the lowest in three years, according to Reuters monthly poll.
Although liquidity has become a dominant concern for fund managers, they still intend to increase exposure to equities to capitalise on expected gains next year.
Eight fund managers took part in the survey, which showed that for December the average recommended allocations to equities rose to 83.8 percent from 82.8 percent in November.
Average recommended allocations to bonds declined to 2.6 percent from 4 percent in November, above the October 2010 low of 2.4 percent, while cash rose to 13.6 percent from 13.2 percent in November, the poll showed.
“High market interest rates remain a risk for the future,” a Shanghai-based fund manager said.
Almost all fund managers questioned in the poll said tight liquidity will be the biggest risk for the stock and bond markets, though some fund managers also said the return of A-share IPOs will exacerbate the strains on stock market capital.
Chinese Premier Li Keqiang said the government will keep liquidity at an appropriate level in 2014, according to comments posted on the website of the State Council, the country’s cabinet, on Sunday.
His comments come after cash crunches in China’s money markets in June and December, which some market observers say were engineered by the central bank which refused to assist the market with large cash injections.
Some fund managers still think that certain shares can be bought selectively after recent downward pressure on A-shares.
Another fund manager in Shanghai said “Now they can buy, some stocks are too cheap. As soon as liquidity eases then valuations will all pick up.”
In the industrial sector, average recommendations suggested overvalued technology stocks will to some extent adjust downwards with the return of IPOs, as has been seen in recent days as the valuation of growth enterprise market stocks have shifted down.
Among low valuation cyclical stocks, on average recommended allocations for machinery stocks will rise significantly, with financial services and autos slightly lower but still remaining high.
The ratio for average monthly allocations for machinery stocks for December was 14.5 percent, compared to 12.3 percent in November, the highest since surveys began in June 2007.
Average monthly allocations for financial services and autos were both down at 15.0 percent and 5.8 percent, compared with 15.9 percent and 6.6 percent, respectively, in November.
A fund manager based in southern China said “The fundamentals are still good. For growth stocks that have been through a certain level of correction, it will be a good time to set up the next moves.” --------------------------------------------------------------- To see other polls in this series, click on: GB/ASSET - Reuters Britain-based asset allocation survey US/ASSET - Reuters U.S.-based asset allocation survey JP/ASSET - Reuters Japan-based asset allocation survey EUR/ASSET - Reuters Continental Europe-based asset allocation survey (Editing by Kim Coghill)