China funds slash equity exposure amid trade war, liquidity worries

SHANGHAI (Reuters) – Chinese fund managers cut their suggested equity exposure for the next three months to a 33-month low, as most of them were on the defensive amid worries over Sino-U.S. trade war and tight liquidity conditions.

They reduced their suggested equity allocations to 65 percent, the lowest level since September 2015 and down from 70.6 percent a month earlier, according to a poll of eight China-based fund managers conducted this week.

The fund managers have boosted their suggested bond allocations for the coming three months to 15.6 percent from 10.6 percent.

They have also hiked recommended cash allocations to 19.4 percent from 18.8 percent in the previous month.

“The collapse of trade talks between China and the United States was beyond market expectations, while Beijing’s continued deleveraging campaign also aggravated already tight liquidity conditions in the market,” a South China-based fund manager said.

The deleveraging effort has driven up borrowing costs for businesses and slowed the economy, and the fear is that any turmoil in China’s markets could restrict Beijing’s ability to pump-prime the economy as it tries to mount a defense in the trade battle with Washington.

Overall, the fund managers surveyed held mixed views on asset allocations for the next month, with six recommending the same level of equity exposure, one suggesting an increase, while another one suggesting a cut.

According to the poll, average recommended allocations for consumer stocks in the next three months rose sharply, those for financial services shares also edged up, while those for most other sectors fell, indicating fund managers’ defensive stance as they “huddled together for warmth” in defensive plays including consumer firms.

For the month, average recommended allocations for consumer stocks leaped to 40.8 percent, the highest level since the launch of the poll in 2007, while those for finiancial stocks were raised to 11.5 percent from 11.9 percent a month earlier.

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