Mutual funds increase consumer stocks to portfolio in Q4 last year

UBS Securities prefers financials, consumer staples, tourism, healthcare and utilities.

Mutual funds continued to add consumer stocks to their portfolio in the fourth quarter of 2017, according to UBS Securities today.

This increase came on the heels of tighter financial supervision and open market operations by the Chinese authorities, the report released by the Swiss brokerage said.

The sectors which saw the greatest weighting increases were insurance, beverages (mainly liquor), white goods, and property developers, the report said, adding that electronics, non-ferrous metals and securities suffered the largest drop in weightings.

Electronics and beverages remained the two most overweighted sectors, although the former recorded the biggest weighting decrease in the fourth quarter, the report said.

"In the A-share market we suggest a well-balanced sector allocation, and continue to prefer financials (insurers and large banks), consumer staples, tourism, healthcare, and utilities," said Gao Ting, head of China Strategy at UBS Securities.

"We foresee institutions becoming the biggest driver of market inflow, driven by retail fund subscriptions, pension funds outsourcing investment to external advisors, and banks raising their equity allocations," Gao said.

Meanwhile regulators have not eased their financial supervision since the start of 2018 because they unveiled a raft of policies covering bond trading, interbank activity and entrusted lending, according to UBS.

The China Banking Regulatory Commission has cracked down on non-compliant bank activity. Last weekend, the China Insurance Regulatory Commission updated rules on insurer investment, and the Ministry of Commerce, jointly with other authorities, unveiled regulations on reporting of external investment.

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