SHANGHAI - China Asset Management Co (AMC), the nation's biggest mutual fund company, bought developers in its flagship fund in the first quarter, predicting "gentle" tightening this year, according to the company's website.

Fund Manager Wang Yawei cut the proportion of equities in his China AMC Large-Cap Select Fund, the best-performing China-based fund over the past five years, to 88.6 percent as of March 31, compared with 93 percent in the preceding quarter.

He sold manufacturers as speculation increased that China may revalue its currency.

"China will continue to exit its stimulus policies," said Wang in the regulatory filing posted on its website. "Tightening will be gentle."

China has ordered banks to set aside more deposits as reserves twice this year to slow record loan growth and curb property-price gains.

A measure of real-estate stocks on the Shanghai Composite Index has declined 19 percent this year, the worst performer among the five industry groups.

The fund's top stock holding, Xinjiang Guanghui Industry Co, a real-estate developer and coal producer, jumped 4.7 percent on Tuesday, extending this year's gains to 45 percent compared with the 9 percent drop in the Shanghai Composite.

Wang bought developers before the government recently announced more measures to curb property speculation.

'More attractive'

China on Tuesday ordered developers not to take deposits for sales of uncompleted apartments without proper approval.

The government also barred developers from charging "abnormally high" prices, stepping up efforts to prevent a property bubble.

Recent stock declines have made China's developers "more attractive" as the curbs on bank lending drove valuations to a year-low and made interest rate increases less likely, Chris Ruffle, who helps manage $19 billion as China co-chairman of Martin Currie, said in an interview on Monday.

Morgan Stanley analyst Jerry Lou recommended on Monday that investors avoid property, banking and construction material stocks, saying the "austerity" measures may be negative in the near term.

The focus on developers' sales tactics adds to curbs on loans for third-home purchases, increased down payment requirements and higher mortgage rates announced in the past week. China's cabinet has said stricter measures to control speculation are needed after property prices in 70 cities jumped a record 11.7 percent in March.

Property stocks accounted for 15.7 percent of the fund at the end of the first quarter, compared with 11.8 percent at the end of the last year, according to the fund statement.

"Wang's very flexible in adjusting his portfolio positions and he may have made money by reducing second- and third-tier property stocks that once outperformed the market in the first quarter," said Dai Ming, a fund manager at Shanghai Kingsun Investment Management & Consulting Co.

The sale of manufacturing stocks comes as speculation increased that China may revalue its currency, which has been pegged to the dollar at about 6.83 yuan since July 2008.

The peg has aided the nation's exporters and fueled complaints from US lawmakers that China has an unfair advantage in trade.

Wang declined a request for an interview through a company spokesman.

Bloomberg News