An investor at a securities company in Fuyang, Anhui province. Investors have had a joyful month in March as the benchmark Shanghai Composite Index gained 12 percent.[Provided to China Daily]

Institutional investors have increased their allocations for the A-share market as they expect a more stable outlook for the Chinese economy for the rest of the year, given the receding fears of a hard landing.

For instance, back in December, French bank Societe Generale SA had said in its outlook for this year that it will reduce direct exposure to Chinese equities to zero. "We are now changing our stance as we expect the Chinese outlook to be more stable," said Alain Bokobza, SG's head of global asset allocation, in a report.

Improved outlook follows a joyful March that saw the benchmark Shanghai Composite Index gaining 12 percent. The SCI consolidated around 3,000 points last week.

Bokobza attributed the change in stance to factors like Chinese authorities' statements that they will support the economy, China's ambitious reform agenda, more moderate currency depreciation expectations thanks to stabilizing capital outflows, and the possibility that Chinese A shares will be included in the MSCI Emerging Markets index.

Government policies seem to be having a positive impact on the economy already. Recently released major economic indicators have shown improvement in the Chinese economy in the first quarter.

China's Purchasing Managers' Index or PMI for the manufacturing sector rose to 50.2 in March, signifying the first expansion since August.

The country's exports in March also exceeded investor expectations, surging 18.7 percent in yuan-denominated terms year-on-year.

The lower-than-expected inflation figure for March also eased investors' fear that the hitherto runaway inflation would constrain China's monetary policy.

On the corporate side, 1,350 A-share companies have released their full-year results for 2015. Information technology, consumption-related and healthcare companies maintained relatively high earnings growth.

"We reiterate our view that consumption upgrades on the part of Chinese residents will boost service spending. And we remain bullish on service consumption theme stocks relating to healthcare, travel, culture, entertainment and insurance," said Gao Ting, chief China equities strategist at UBS Securities.

Li Shaojun, chief strategist at Minsheng Securities Co, said in a research note the improvement in market sentiment will be a slow process. Investors are focusing on key events, including the government's equity-for-debt swap to reduce banks' bad assets, and the introduction of a new set of risk-management indicators for securities firms.

But Jiang Chao, an analyst with Haitong Securities, warned about risks accumulating in the market and advised investors to remain cautious for the rest of the year.

"From the short-term point of view, the market is having a rare honeymoon period as both international and domestic environments have turned favorable. But in the long term, the favorable factors could turn into destabilizing factors."