Investors cut holdings as govt ups efforts to prevent bubbles

China stock funds post net outflows, go against emerging-market trend

SINGAPORE - Investors cut their holdings of Chinese equities in January as the government stepped up efforts to cool asset bubbles, according to EPFR Global.

Global emerging markets and Asia excluding Japan equity funds reduced their average holdings of Chinese shares by 0.72 percent and 1.13 percent, respectively, EPFR said in a statement received on Thursday.

China's weighting in global and Pacific funds also declined, according to the statement.

China's stocks are the worst performers in Asia this year after the central bank twice ordered banks to set aside more funds as reserves and officials stepped up curbs on property speculation.

The Shanghai Composite Index has dropped 7.9 percent in 2010, while the Hang Seng China Enterprises Index, tracking Hong Kong-traded mainland companies, has lost 7 percent.

"China's story continued to sour" for global developing nation and Asian fund managers as "the country's government tries to engineer an exit strategy that prevents asset bubbles and keeps inflation within reasonable bounds without drastically curtailing growth", EPFR said.

China stock funds have posted net outflows in nine of the first 11 weeks of the year even as emerging-market funds continued to draw fresh money, the Cambridge, Massachusetts-based researcher said in a March 18 statement.

Indonesia, Turkey

Indonesia's weighting within Asian equity funds rose to a 12-year high, EPFR said. Data for the month ended Jan 31 was released to clients on Feb 23, the company said.

The Shanghai Composite Index fell 1.2 percent to 3019.18 at the close on Thursday, the worst performer in Asian trading, while the Jakarta Composite Index climbed 0.88 percent to 2799.149. The Indonesian gauge is the best performer in Asia this year.

Funds tracking global emerging stock markets also boosted their investments in developing Europe to a 15-month high and raised their holdings of the Middle East and Africa from a 12- year low set in December, EPFR said.

Turkey was the fund group's biggest "overweight" for a sixth straight month, followed by Russia, Indonesia, Thailand and Mexico, according to the statement.

Six of the eight major equity fund groups tracked by EPFR, including those investing in Asia and global emerging market stocks, also increased their cash weightings in January.

Bloomberg News

(China Daily 03/26/2010 page17)