October 31, 2018 / 5:04 AM / 19 days ago

POLL-China funds trim equity exposure as trade war, financial risks weigh on confidence

SHANGHAI, Oct 31 (Reuters) - Chinese fund managers trimmed their suggested equity exposure for the next three months, as they remained cautious amid uncertainties about trade tensions and domestic factors, and despite policymakers’ pledges to support the market.

Fund managers have lowered their suggested equity allocations to 70.6 percent, down from 72.5 percent a month earlier, according to a poll of eight China-based fund managers conducted this week.

They also boosted their suggested bond allocations for the coming three months to 12.5 percent from 5 percent and reduced their recommended cash allocations to 16.9 percent from 22.5 percent in the previous month.

“There are still uncertainties in the current investment environment, and internal and external environments are relatively complicated,” one of the respondents, a Shanghai-based fund manager, said.

Fundamentally, the downward trend for China’s economy remains intact, though debate centres on the depth and duration of a future slowdown, the fund manager said, adding overall Chinese stock valuations have not bottomed out yet.

Risks also remain for the stock market, a South China-based fund manager said, citing external factors including the ongoing Sino-U.S. trade spat and uncertainties in China’s economy. Domestic issues include Beijing’s deleveraging efforts in the real economy and financial markets as well as an overhang of pledge shares that threatens market liquidity challenge.

U.S. President Donald Trump said he thinks there will be “a great deal” with China on trade, but also vowed new tariffs on billions of dollars of Chinese good if a deal isn’t possible.

In its latest bid to prop up the markets and real economy, China’s banking and insurance watchdog said on Tuesday that it will soon release new rules to boost financing to the private sector including small companies, and urged banks to keep lending to businesses facing temporary difficulties.

Overall, the fund managers surveyed held mixed views on asset allocations for the next month, with three recommending boosting equity exposure, four suggesting a cut, and one suggesting a status quo.

According to the poll, average recommended allocations for financial and real estate stocks in the next three months rose, while those for auto and tech firms dipped slightly. Fund managers preferred blue-chips with low valuations and high dividend yields amid a steep correction in the stock market.

“The best opportunities now lie in leading firms with solid fundamentals which are oversold,” the South China fund manager said, citing good investment value due to their big safety margin and leading industry positions.

For the month, average recommended allocations for financial firms rose from 17.5 percent to 18.8 percent, those for real estate firms climbed from 6.8 percent to 8.6 percent. ——————————————————————————————— To see other polls in this series, click on: - Reuters Britain-based asset allocation survey - Reuters U.S.-based asset allocation survey - Reuters Japan-based asset allocation survey - Reuters Continental Europe-based asset allocation survey (Reporting by David Lin, Luoyan Liu and John Ruwitch; Editing by Vyas Mohan and Sam Holmes)

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