Chinese mainland equity-invested funds cut their stock exposure by more than 4 percentage points in the first quarter during a broad market slump, industry data showed on Friday.

Analysts expect stock investing by funds will recover in the second quarter and the funds' focus may shift back to property and financial counters whose stock prices have logged dramatic losses this year.

The average stock exposure of equity funds stayed at 75.78 percent as of March 31, down from 80.12 percent at the end of 2007, according to data compiled by Essence Securities from funds' first-quarter reports.

Equity funds slashed positions in banking and insurance companies by 234.2 billion yuan (US$33.5 billion) in the first quarter while reducing investment in non-ferrous metal firms by 110 billion yuan, the data showed.

The petrochemical sector, which was earlier battered by high oil prices, was the most favored sector for mutual funds thanks to their low valuation with an investment increase of 6.76 billion yuan in the first quarter.

The agricultural industry came second with an exposure rise of 1.89 billion yuan while the paper making sector ranked third with a capital inflow of 640 million yuan by mutual funds during the quarter.

The benchmark Shanghai Composite Index dropped 34 percent in the first quarter amid concerns over inflation and an economic slowdown. It has risen by 6.3 percent since April 1 with government supportive policies including a stamp duty cut.

"With the market turning steady, funds will come back to stocks partly from the incentive of bargain hunting," said Wu Ke, a Zhongtian Investment Consulting Co analyst. "For listed firms with solid earnings growth, the rebound will be strong."

Essence Securities noted that financial and property chips will again be on the funds' radar after their recent drops, which have made valuation worth investing.

Consumption-related sectors including food and beverages will probably also be lifted, it said.

(Shanghai Daily May 4, 2008)