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DOMESTIC fund managers reduced their suggested equity allocation sharply for the next three months, hitting a 17-month low, amid fears that a flood of initial public offerings (IPO) could soak up capital and dampen share prices, according to a recent poll.
April’s average recommended stock weightings fell to 77.5 percent from 81.3 percent a month earlier, according to a poll of eight China-based fund managers conducted the week of April 21.
Funds increased allocations to bonds to 5.1 percent from 3.9 percent, while upping allocations to cash to 17.4 percent from 14.9 percent.
“The greatest short-term risk is the pressure on stocks that will come from the IPOs,” said a fund manager based in Shanghai who declined to be identified. But falling share prices could present an investment opportunity, he added.
Many fund managers surveyed have trimmed their share holdings to reduce exposure.
A total of 144 companies have posted draft prospectuses on China’s regulator’s website since April 18, after an eight-week long hiatus, stoking fears that a deluge of IPOs is imminent.
The second batch of potential debutantes comes after a flurry of 48 IPOs in January and February, following a 14-month freeze. The dry spell has caused confusion and since January more than 24 companies have shelved applications to list.
Another respondent, who declined to be identified, said he will watch for any changes to monetary policy made by China’s central bank in the second quarter and the impact of continued U.S. stimulus tapering in his next allocation analysis.
Last month, allocations for machinery, auto and property stocks increased slightly, while metal shares fell. Fund managers based their adjustments last month on first quarter results.
The average recommended allocation for machinery and auto stocks were 16 percent and 5.6 percent, respectively, a rise from 15 percent and 4.3 percent a month ago. For metals, the average recommended allocation fell to 2.5 percent from 6.3 percent two months ago. (SD-Agencies)
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