LI, Tao @ Hong Kong

Fund managers have turned cautious on the mainland in the third quarter due to worries about tightening measures taken by the Central Government, according to a quarterly survey released Monday.

Only half the funds were “overweight” on the mainland in the third quarter, down from 71 percent in the previous period, according to the HSBC Fund Manager’s Survey.

Quantitative tightening measures as well as efforts to cool the mainland property market have had an impact on investor sentiment and market performance, said Bruno Lee, HSBC Regional Head of Wealth Management Asia-Pacific, at a media briefing Monday. He noted that China equity funds saw net outflows in the second quarter – which has not happened since the first quarter of 2009.

“More fund managers are taking a neutral stance towards Chinese equities for the rest of the year in expectation of further government measures targeting high inflation and low interest rates,” he added.

The mainland’s consumer price index, a key gauge of inflation, gained 3.5 percent in August compared with a year ago, and was also up 0.2 percent from July 2010.

This is the fastest rate in two years and inflation has now been outrunning the 2.25 percent yuan-denominated deposit rates for seven consecutive months.

This is leading to concerns in the market that there are likely to be interest rate hikes in the near future.

Nevertheless, Lee believes that mainland equities still have long-term appeal for both retail and institutional investors, especially once the fragile global economy recovers.

“While uncertainties in the overall global economic landscape will continue to influence investors, the mainland’s economy remains resilient and a market pullback may create interesting opportunities,” Lee said.

China Daily

(HK Edition 09/14/2010 page3)

http://www.chinadaily.com.cn/hkedition/2010-09/14/content_11297858.htm