China Remains A Favourite Among Fund Managers

The insulation of China's stock markets from the global financial turmoil has kept the country's equities popular among international fund managers despite recent price gains, according to Dow Jones Newswires' monthly poll of managers active in Asia.

Driven by domestic investors with massive savings, a seemingly insatiable appetite for stocks, and government imposed limits on asset flows, China's bourses have far outpaced other global equity markets and remained protected from credit market trouble that weighed on stocks elsewhere. The Shanghai Composite is up 20% since the end of July. And though managers anticipate some turbulence ahead - including a period of underperformance by Chinese shares as other markets race to catch up - many think that the long term outperformance of Chinese stocks is set to continue. That's partly because few expect Chinese authorities to take major steps to cool stock price gains. "With liquidity conditions strong and the authorities unlikely to want to cause a major reversal, only targeted and incremental measures are likely," wrote Nicholas Brooks of Henderson Global Investors, in response to the survey. Managers also favor India, though they remain cautious about the impact of foreign capital flows and a slowing of economic growth. Still, India is seen as somewhat insulated from an economic slowdown in the U.S. thanks to its relatively small export sector. "Despite our short-term cautious view and expectation of a volatile market, we remain positive on a medium to longer term perspective," fund managers at Halbis, an investment unit of HSBC Group wrote in response to the survey. Falling out of favor compared with other Asian markets is Japan, thanks the country's sensitivity to global economies. Still when viewed on fund managers' global portfolios Japan remains a slight overweight. Also out of favor thanks to global economic concerns is Taiwan. But Singapore moved up in some manager's estimation, rising to a slightly overweight from a slightly underweight rating in recent months. One reason is a sense that the country can serve as a safe haven. "Although we have been neutral Singapore due to the strong run-up in the market in the first half of the year, shift to overweight is due to what we believe is the defensive nature of its growth and its well-deserved safe haven status," Henderson's Brooks wrote. Broadly equities remain favored over bonds and cash in the long-run, though some managers have decreased exposure to stocks for now. "Overall our instinct is that equity markets will be stuck in a rut for the next two-to-three months," said Geoff Lewis, head of investment services at JF Asset Management. Still, "on a one-year basis we still expect equities to outperform both bonds and cash," he said.