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Fund performance hurt by weak stocks

By Jin Jing (China Daily)
Updated: 2008-06-12 09:55

All fund classifications suffered losses in May due to the weak performance of the mainland equity market, with qualified foreign institutional investor (QFII) funds losing 7.29 percent on average.

A total of 19 QFII funds have lost an average of 28 percent from the beginning of this year and their total assets shrank 5.6 percent from April to $7.837 billion in May, according to statistics from Lipper, which tracks the performance of funds in China.

"However, the QFII A-share funds show no signs of a large-scale retreat from the market as their assets did not shrink sharply due to redemption," said Feng Zhiyuan, head of research for the mainland and Taiwan at Lipper.

China equity funds fell 7 percent in May, followed by mixed aggressive funds, 5.56 percent, and mixed flexible funds, 5.21 percent. Profits of QDII funds, which outperformed others, declined 0.61 percent.

The uncertainties hanging over the stock market and China's economy made fund managers more pessimistic on the outlook and more hesitant and cautious in making investment decisions.

According to latest research from CEB Monitor Group Ltd, only 4 percent of fund managers said they will increase their positions from June to August this year, and nearly 80 percent of fund managers expect the annual corporate earnings growth to be below 30 percent.

However, most fund managers interviewed favor stocks in finance, coal, medicine and consumption sectors, while they were pessimistic on real estate and electrical companies.

Feng Zhiyuan at Lipper said QFII funds favor leading companies in each industry such as China Construction Bank in the banking sector and China Life in the insurance sector.

"For safety, people can invest more on bond funds or money market funds, which are expected to have more stable returns," said Feng. Profits of money market funds rose 0.25 percent in May while that of bond funds climbed 0.19 percent.

Fund managers suggested investors be more cautious in buying stocks because of the storm cloud looming over China and the US and other global equity markets, but can take in some low-priced stocks.

A report from China International Fund Management Co Ltd said the valuation of A-share companies is already at a low level, under 20.

"The market is not expected to have wide fluctuations before the Olympic Games, but as uncertainties still cloud the macroeconomy and corporate earnings, it will continue to be volatile," said the report.