Mutual funds in China raised their recommended equity weightings to an eight-month high in June, betting inflation will stabilise in the second half of the year and further monetary policy tightening will be limited, a Reuters poll showed.
The average suggested equity weightings over the next three months rose to 85.6 percent, the highest level since October, according to the poll of eight China-based funds conducted this week. Fund managers slashed their suggested bond allocation by half to 5 percent, while increasing recommended cash weightings to 9.4 percent from 7.5 percent a month earlier.
"The market expects inflation would peak in June, before trending lower," a Shanghai-based fund manager said. "Even if the central bank raises rates again in July, the market would interpret the move as the second shoe dropping."
China has raised benchmark interest rates twice, and banks' required reserve ratios six times this year to tame stubbonly-high inflation, which hit a 34-month-high of 5.5 percent in May. China Information Centre, a government think-tank, predicted that inflation would likely stabilise around 4.5-5.5 percent for some months, bringing annual inflation this year to about 4.9 percent.
The fund managers polled expected the Shanghai Composite Index to rise to 2,921 points over the next three months, compared with 2,763 points at the end of morning session on Thursday.
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