China funds raise suggested equity weightings in March

Mutual funds in China raised their recommended equity weightings to 82.8 percent, suggesting higher exposure to financial and property stocks, as fears of monetary tightening ease although inflation remains in focus, the latest monthly Reuters poll of fund managers showed.
The average suggested equity weighting over the next three months rose from February's eight-month-low of 79.4 percent, according to the poll of nine China-based funds conducted this week. Their suggested allocations for bonds were cut to 3.9 percent from 6.9 percent, while recommended exposure to cash dipped to 13.3 percent from 13.8 percent a month earlier.
"The biggest opportunity in the stock market would come from a better-than-expected global economy and a potential loosening in macroeconomic policies," said a Shanghai-based fund manager who declined to be identified. "But instability in the Middle East may impact oil prices, posing potential risks to stock investment." China has urged lenders to set aside more cash as reserves nine times since last year, boosting banks' reserve requirement ratios (RRRs) to a historic high of 20 percent. The central bank has also been aggressively absorbing liquidity through open market operations, which will lessen the need for blunter tools such as RRR increases.
In addition, expectations of further interest rate increases has also waned after a deputy central bank governor said earlier this month that he was "comfortable" with China's current interest rate level. The fund managers polled see Shanghai shares little changed over the next three months, expecting the benchmark Shanghai Composite Index to rise to 2,992 points on average in three months versus 2,955.771 points at Wednesday's close. Within the equities portfolio, the suggested weighting for financial shares was boosted to a one-year-high of 18.3 percent from 10.6 percent a month earlier, while recommended allocations of consumer stocks were slashed to a one-year-low of 19.1 percent from 22.5 percent last year.
Chinese banks have generally reported better-than-expected 2010 earnings as they benefited from widening net interest margins and loan expansion. Major banks including China Construction Bank, Bank of China and Agricultural Bank of China trade at less than nine times their earnings, compared with an average price/earnings ratio of 23 times for the benchmark index.