China funds boost fixed income allocations

By Helen Ding

SHANGHAI (Reuters) - Chinese mutual funds have sharply raised their recommended allocations to fixed income and cut allocations to equities because of a slowing economy, the latest monthly Reuters poll of fund managers shows.

On average, the funds raised their suggested allocation to bills and bonds within a balanced portfolio to 18.50 percent, the highest level since the poll was launched in mid-2007, from 13.125 percent a month ago.

The poll of eight China-based funds was taken over the past several days. In recent weeks, data have continued to suggest that the Chinese and global economies are slowing, while the stock market's Shanghai Composite Index .SSEC has hit 20-month lows.

Fund managers do not expect a big drop in Chinese interest rates. On average they forecast the one-year central bank bill yield in the secondary market CN1YNFIX=R will stand at 4.06 percent three months from now.

That is down only marginally from 4.08 percent on Thursday, and slightly above an average prediction of 4.0375 percent made in last month's poll.

But given the risk of a Chinese and global economic slowdown lasting into next year, signs that Chinese inflation has peaked for now and the slump in the Shanghai stock market, managers believe bonds may outperform stocks in the next few months.

EQUITIES

Funds cut their average suggested allocation to equities to a six-month low of 72.125 percent from 76.25 percent.