SHANGHAI (Reuters) - Chinese fund managers have trimmed their suggested equity exposure for the next three months to the lowest in 6 months due to soured risk appetite amid tighter government regulations to contain speculation.
China’s politburo, a top decision-making body of the ruling Communist Party, held the 40th study meeting on national financial security and stability this week, and President Xi Jinping made a rare speech on financial stability.
“We think it sends an important signal to support the ongoing tightening of financial regulation and enforcement,” Citi wrote in a recent note.
The fund managers cut their suggested equity allocations to 76.3 percent, according to a poll of eight China-based fund managers conducted this week, down from 79.4 percent a month earlier.
It is the third straight month that asset managers have recommended cutting equity exposure.
The fund managers have, meanwhile, raised their suggested bond allocations for the coming three months to 11.3 percent from 7.5 percent a month ago.
They have also reduced recommended cash allocations to 12.5 percent, from 13.1 percent in the previous month.
“The decline in the second half of April was driven more by soured sentiment, as speculative money suffered setbacks. It could take time for the market to recover,” a South China-based fund manager said.
Overall, the correction in the benchmark indexes was relatively sufficient given the recent sharp decline, a Shanghai-based fund manager said, adding there could be a rebound if the market steadies.
Average recommended allocations to financial stocks were raised to 15.6 percent from 12.5 percent, but recommended allocations to consumer stocks were down to 27.5 percent from 32.5 percent, indicating blue chips with lower valuations were favored as investors remained cautious for the moment.
“For now we prefer value investing, as it would take time to restore confidence in the market,” another Shanghai-based fund manager said, referring to a long-term approach with focus on companies’ fundamentals and growth prospects.
Investors shall refrain from “concept” stocks - usually small-cap and speculative plays, said the manager, adding he prefers the “One Belt, One Road” theme, cyclical stocks and financial plays.
“One Belt, One Road” is a signature economic policy of Chinese President Xi Jinping, envisioning massive infrastructure spending to link China to the rest of Asia and Europe.
Reporting by David Lin, Luoyan Liu and John Ruwitch; Editing by Jacqueline Wong