Mutual funds lower stock outlook

Updated: 2011-09-01 09:29

By Samuel Shen and Kazunori Takada (China Daily)

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SHANGHAI - Chinese mutual funds cut their recommended exposure to stocks to the lowest level in 14 months, suggesting higher bond and cash holdings as growing economic uncertainty dampens risk taking, the latest monthly Reuters fund poll showed.

The average suggested equity weighting over the next three months fell to 79.3 percent from July's 84.5 percent, according to the poll of nine China-based fund managers conducted this week.

The recommended weightings for bonds were raised to 7.1 percent from 6.3 percent in July. Recommended weightings for cash were raised to 13.6 percent from 9.3 percent in July.

"A weaker-than-expected economic recovery in the United States and Europe would pose risks to the Chinese stock market," said a fund manger, who declined to be identified.

"The biggest opportunities for stocks would come from an easing in monetary policies and improved prospects of economic growth."

Global stock markets have been rocked during the past month by Standard & Poor's decision to downgrade US credit ratings as fears mount over the health of the US and global economy.

In China, the central bank ordered banks to include margin deposits as part of required reserves, a move that some analysts say could be signal of a continuation in policy tightening.

China has set fighting inflation, which stood at a three-year high of 6.5 percent in July, as a top priority this year although calls for a loosening to aid certain struggling industries have been growing from the private sector.

The poll also showed a big divergence in fund managers' forecast of the Shanghai Composite Index three months from now, with three forecasting a rise to 3000 points and three others predicting that the index would be lower than 2600 points.

On average, fund managers forecast the main stock index would rise to 2750 points in three months, down from a prediction of 2856 points made in July.

On sector allocation, fund managers boosted their suggested weightings of financial stocks to 16.6 percent from 10.6 percent.

This is a sign that banking stocks, whose valuations are near historic lows, may be gaining attraction amid market volatility.

Suggested exposure to the property sector also rose to 10.6 percent from July's 8.8 percent, despite fresh tightening measures.

Consumer stocks remain fund managers' favorite sector, although their recommended weighting in the portfolio fell to 24.6 percent from 26.9 percent in July.