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Foreign money has also been flowing into China equities, sending
the benchmark index up 7.4% in January, although analysts say
overall foreign positioning is still conservative and more could
come.
The shift in allocation towards riskier assets comes as China
took measures to boost its economy, including dismantling its
strict zero-COVID policy and supporting the property sector in
late 2022.
China's stock benchmark is up nearly 20% from an October low,
while the five-year Treasury has surged more than 25 basis
points as bond prices slumped.
"We are at the initial stage of a recovery," said Mo Zhaoheng,
investment director at Guangzhou Hanma Investment Management.
"It would benefit stocks, while troubling fixed income assets."
Mo said he had added more stock positions in November and
December, when many investors shifted money out of bonds on fear
that the bond bull market may be over.
The assets under management of Chinese equity mutual funds rose
8.7% to 2.47 trillion yuan ($366.38 billion) in the fourth
quarter, after dropping 7.3% a quarter earlier, while that of
bond funds fell 6.9% to 7.4 trillion yuan ($1.1 trillion) after
rising for six straight quarters, according to TX Investment
Consulting.
Goldman Sachs analysts said overseas investor positioning had
not fully caught up with the improving sentiment and
fundamentals, suggesting both international and domestic
investors will continue to buy stocks.
New launches of equity funds in the fourth quarter also remained
subdued, Lei Meng, China equities strategist at UBS Securities
said, while noting that such issuance of funds usually lags
stock market performance for about three months.
As Chinese shares bottomed out in November, Meng expected mutual
funds' issuance to step up in February.
"It will bring a steady stream of incremental funds to fuel the
market," said Yang Delong, chief economist at First Seafront
Fund Management.
($1 = 6.7417 Chinese yuan)
(Reporting by Jason Xue, Samuel Shen and Brenda Goh)
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