China funds cut equity exposure as trade war, economic worries linger: Reuters poll

SHANGHAI (Reuters) – Chinese fund managers continued to lower their suggested equity exposure for the next three months, amid lingering concerns over an economic slowdown and the Sino-U.S. trade spat, though some started to turn optimistic given the low levels of overall stock valuations in the market.

Fund managers have lowered their suggested equity allocations to 68.6 percent, down from 70.6 percent a month earlier and lowest since August, according to a poll of seven China-based fund managers conducted this week.

They reduced their suggested bond allocations for the coming three months to 8.6 percent from 12.5 percent and added their recommended cash allocations to 22.9 percent from 16.9 percent in the previous month.

“For the short term, eyes were on the talks between Chinese President Xi Jinping and the U.S. president Donald Trump who will meet on the sidelines of G20 Summit, and there are good chances the two will reach a consensus not to deteriorate the trade tensions,” said a Shenzhen-based fund manager.

A consensus or a more positive outcome, if achieved, could help lift risk appetite and valuations recovery, otherwise the stock market could be falling back, the fund manager added.

“According to the situation in the G20 Summit, there is a risk of seesaw Sino-U.S. trade frictions, and China’s exports could witness a substantial fall in January and February next year,” a Shanghai-based fund manager said.

Three fund managers expressed their worries over a continuation of economic slowdown, though they believed the slowdown could bring about marginal easing in monetary policies and increased efforts by the Chinese government to bolster the economy. In view of the current domestic environments, those fund managers expected the infrastructure spending to be used again as a key measure to stabilize the economy.

Overall, the fund managers surveyed held mixed views on asset allocations for the next month, with four recommending boosting equity exposure, while three suggesting a status quo.

According to the poll, average recommended allocations for electronics and machinery stocks in the next three months jumped, those for real estate also rose, while those for consumer, auto, energy and transport slipped.

“The best opportunities lie in undervalued stocks and sectors,” a Shenzhen-based fund manager said.

For the month, average recommended allocations for electronic firms rose to 18.7 percent from 12.6 percent, those for machinery firms climbed to 7.9 percent from 3.4 percent, while those for real estate firms increased to 9.9 percent from 8.6 percent.

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