March 30, 2018 / 5:06 AM / 23 days ago

China funds slash equity exposure to 18-month low amid trade war fears, boost cash: poll

SHANGHAI (Reuters) - Chinese fund managers slashed their suggested equity exposure for the next three months to an 18-month low amid worries that the China-U.S. trade spat could bring uncertainties to the world’s second largest economy and its capital markets.

FILE PHOTO: A man is seen against an electronic board showing stock information at a brokerage house in Fuyang, Anhui province, China March 16, 2018. REUTERS/Stringer

They cut their suggested equity allocations to 70 percent from 76.3 percent a month earlier, according to a poll of eight China-based fund managers conducted this week.       

The fund managers have maintained their suggested bond allocations for the coming three months at 8.8 percent.

They have boosted recommended cash allocations to 21.3 percent from 15 percent in the previous month. 

“Market participants are starting to worry about (China’s) economic growth and liquidity conditions for the whole year of 2018, given the fallout from China-U.S. trade tensions, financial regulations and Beijing’s deleveraging efforts,” said a South China-based fund manager.

U.S. President Donald Trump’s tariffs on Chinese goods may not be imposed until early June, administration officials said on Wednesday, with public consultations and potential tariff revisions buying time for negotiations to forestall them.

China warned the United States on Thursday not to open Pandora’s Box and spark a flurry of protectionist practices across the globe, even as Beijing pointed to U.S. goods that it could target in a deepening Sino-U.S. trade dispute.

“There have been many uncertainties recently, including China-U.S. trade spat and rate hike by the U.S. Fed,” said another fund manager, adding that it could be hard for small- and mid-cap firms to extend recent strong gains as their valuations are not cheap.

Overall, the fund managers surveyed held relatively balanced views on asset allocations for the next month, with two favoring an increase, two suggesting a cut, while four recommended the same level of equity exposure.

According to the poll, average recommended allocations for electronic and consumer stocks in the next three months continued to climb, while those for cyclical plays including financial and real estate firms were lowered.

Growth stocks, in particular tech firms, have gained momentum as Beijing pledged a great deal of support for the development of “unicorns” and other firms in emerging industries, including “green light” for their initial public offerings in the A-share market, a fund manager pointed out.

That came as Beijing puts more focus on the quality of its economy as it seeks new growth drivers to power the economy.

The selling pressure in financial and real estate stocks remained heavy, and investors should avoid the manufacturing and financial sectors which could be hit hard in case of a full-blown China-U.S. trade war, the fund managers added.

Average recommended allocations for electronic stocks in the next three months were boosted to 16.3 percent from 15.9 percent the previous month, those for consumer shares were raised to 29.6 percent from 28.1 percent, while those for financial firms were reduced to 15 percent from 18.8 percent last month.

Reporting by David Lin, Luoyan Liu and John Ruwitch; Editing by Subhranshu Sahu

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