More fund managers are eyeing growth opportunities in the equity market, particularly the Greater China region, in the third quarter following a cautious second quarter in which investors flocked to bonds for yield amid global uncertainties, according to HSBC's latest quarterly fund manager survey released on Tuesday.

Asked about their views on asset allocation over the next three months, 63 percent of fund managers polled are bullish on equities, up from the previous 44 percent. On the contrary, 57 percent said they will "underweight" bonds, increasing from 38 percent.

Greater China equities grabbed most of the attention, favored by 57 percent of polled fund managers, more than doubling its last reading of 25 percent.

"Fund managers are looking toward the emerging markets for opportunities and are focusing on Greater China equities as market expectations of the end of the mainland's tightening cycle continue," said Bruno Lee, HSBC's regional head of wealth management Asia-Pacific.

In the review of asset flows in the second quarter, equity funds posted outflows of $14.3 billion while bond funds registered a $62 billion inflow, reflecting marked risk aversion on the back of concerns over global recovery and developed market debt issues, according to the survey.

In a UBS Investment Research report dated August 31, the bank concluded that the highest level of anxiety and panic among global investors since the financial crisis broke out in 2008 peaked in August.

In emerging markets, the capital flow from equity to bonds over the past few weeks indicated that investors preferred to tap those economies' strong balance sheets rather than their growth prospects, according to Jonathan Anderson, economist at UBS.

Looking ahead, policy adjustments on the mainland, on which fund managers have pinned their hope in the coming months, seem to be justified, according to economists.

China's CPI surged to a 37-month high of 6.5 percent in July, above the government's target ceiling of 4 percent. To curb inflation, the central bank has raised the benchmark interest rates three times and the reserve requirement ratio six times this year.

Banny Lam, economist at CCB International, thinks that the tightening cycle is nearing its end since CPI will decline with a moderation in food price increases observed in August.

Lam forecast in a recent research note that the mainland's August CPI will taper to 6.2 percent, a pace that will help ease concerns on future monetary tightening measures.

Mingchun Sun, an economist at Daiwa Capital Markets, also expects that further rises in the headline CPI are unlikely thanks to a high comparative base.

However, the research house reiterated its view of a 25 percent chance of an economic hard landing on the mainland, due to weak global demand taking its toll on its trade, industrial production, and eventually domestic demand.

joyli@chinadailyhk.com

China Daily

(HK Edition 09/07/2011 page2)