Stocks News
- Funds cautiously upbeat on stocks
Date: 2-Nov-2007 Sources: (Shenzhen Daily)
DOMESTIC mutual funds have slightly raised their suggested equity allocation for the next three months and trimmed cash, but they still see limited upside for stocks in the near term after a massive multi-year rally, a monthly survey shows.
Funds remain bearish on bonds and bills because of fears of further tightening of monetary policy.
The average equity allocation recommended by the nine China-based funds for the next three months edged up to 78.3 percent of a balanced portfolio from 77.8 percent a month ago.
Managers said they were encouraged by strong third-quarter corporate earnings, particularly in the financial sector.
But they expect China's main stock index to stay roughly where it is in the short term after surging fivefold since the start of 2006.
On average, they forecast the index will be at 6,056 points three months from now, little changed from the current level of 5,954.
'A major risk faced by stock investors is that the government might announce more tightening measures, and that would hurt listed companies' earnings prospects,'said one of the funds.
China is widely expected soon to raise its interest rates for the sixth time this year to curb inflation. It is also expected to take more steps to mop up excess liquidity from the banking system through open market operations and bank reserve hikes.
Three of the nine funds expect the Shanghai Composite Index to be above 6,000 points three months from now, with the highest forecast at 7,000. But others expect levels as low as 5,000.
Other risks cited by fund managers include a worsening of the U.S. mortgage crisis, an increasing supply of stocks due to big public offers, and diversion of money to the Hong Kong stock market and domestic gold futures trading.
Over the next month, six funds said they expected to keep their equity allocations unchanged, while two said they would reduce it and the other said it would increase the allocation.
Due in part to listings of blue-chip companies, mainland-listed firms reported combined net profit of 566 billion yuan (US$76 billion) for the first three quarters of 2007, up 67 percent from a year ago.
But investors need time to find out whether listed firms can maintain such earnings growth for next year, fund managers said. Many analysts expect earnings growth to roughly halve in 2008.
Funds on average recommended keeping 13.9 percent of investment money in cash, down from 14.4 percent a month ago.
But the suggested allocation for bills and bonds remains at 7.8 percent. Three managers said they would completely avoid bills and bonds, and the rest suggested allocations between 5 and 25 percent.
On average, however, the nine funds predicted the yield on the one-year central bank bill in the secondary market would be 3.72 percent three months from now.
That is lower than their three-month prediction of 3.81 percent in the last poll, and roughly flat from the current level of 3.71 percent.
In the stock market, funds still favour the financial sector, such as banks and brokerages, most of which reported hefty earnings growth for the third quarter. Managers recommended putting an average of 25.3 percent of equity funds in financials, up from 21.4 percent a month ago.
They recommended cutting allocations to the consumer and metals sectors following strong rises of those stocks.
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