Chinese fund managers slightly increased their stock holdings in the third quarter of the year on average, and stayed overweight on large-capitalized stocks with solid earnings.

The 70 securities investment funds averaged 63.36 percent of their assets in the local-currency Class-A share markets in Shanghai and Shenzhen in the third quarter compared with 61.4 percent in the earlier quarter.

During the period, the Shanghai A-Share Index dropped 8 percent and the Shenzhen A-Share Index fell 7.4 percent.

"Fund managers actually bought more shares at a time when stock prices fell," said Sun Chao, an analyst at Citic Securities Co Ltd. "A possible explanation is that they decided to buy more shares which they thought had al-ready dropped far enough."

However, fund managers remained divided over the market prospects as not all mutual funds increased their investments in the equities market.

For instance, Harvest Growth Mutual Fund, an open-end fund operated by Harvest Fund Management Co Ltd, raised its stock portfolio to 76.04 percent from 46.09 percent in the earlier quarter.

The fund stayed heavily in Shanxi Taigang Stainless Steel Co Ltd, a Shenzhen-listed firm that accounted for 8.04 percent of the fund's net asset value.

In contrast, Fund Anshun, a closed-end fund under the management of Hua'an Fund Management Co Ltd, slashed its stock holding to 57.52 percent from 77.80 percent in the previous quarter.

Fund Anshun dropped China Merchants Bank from its list of top 10 heavily held stocks this quarter. The bank comprised 4.20 percent of Anshun's net asset value in the second quarter.

Major shareholders of the bank, one of the five listed domestic lenders, have already approved the plan to sell the convertible bonds worth 10 billion yuan (US$1.2 billion), a move fund managers are against.

The portfolio reports showed fund managers still held heavily in stocks with large market capitalization. Prices of these shares declined in the third quarter after gaining more than 50 percent in the first half of the year due to the strong earnings growth they posted amid China's booming economy.

Baoshan Iron and Steel Co Ltd - the country's most profitable steelmaker, China United Telecommunication Corp and Shanghai Automotive Co Ltd were among the stocks that fund managers stayed heavy in during the third quarter.

All the fund management companies completed the release of their third-quarter portfolio reports yesterday.

(Shanghai Daily October 29, 2003)