China funds cut equity allocations on correction fears: Reuters poll

SHANGHAI (Reuters) – Chinese fund managers cut the proportion of their portfolios to be invested in stocks over the next three months as they fear a sharp correction may be imminent after the market’s torrid rally, a Reuters poll showed.

China’s stock market <.SSEC> <.CSI300>, which more than doubled over the past year despite a slowing economy, plunged over 6 percent on Thursday after more brokers tightened margin trading requirements for clients and the central bank drained market liquidity.

Chinese fund managers cut their suggested equity allocation for the next three months to 80.6 percent from 81.3 percent, according to a poll of eight China-based fund managers conducted this week.

Funds also reduced their suggested bond allocation to 7.6 percent from 8.3 percent a month ago, but upped cash weightings to 11.8 percent from 10.5 percent in April.

“New fund inflows have fueled the market’s bull run, but risks are accumulating in the process,” said a Shanghai-based fund manager, who declined to be identified because he is not allowed to speak to the media.

The market needs to consolidation before rising again, he said.

Most fund managers still believe that stocks will benefit from further monetary easing by the government as it seeks to avert a sharper economic slowdown, including additional cuts in interest rates and banks’ required reserve ratios.

This month, suggested allocations to electronics stocks rose further, despite their lofty valuations, but fund managers reduced recommended exposure to financial, auto and machinery stocks.

The poll was conducted before Thursday’s market selloff. China stocks bounced wildly in and out of negative territory on Friday.

(Reporting by David Lin; Writing by Engen Tham; Editing by Kim Coghill)

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