Trim mainland share portfolio, investors told

Top investment banks are advising investors to reduce holdings in mainland stocks, saying Beijing's efforts to slow runaway growth will hit property companies and banks.

Clive McDonnell, the head of equity strategy at BNP Paribas, said more stringent measures to slow the economy would affect corporate profit growth, even at some of the nation's biggest capitalised firms.

BNP Paribas had already put an 'underweight' rating on key banks including China Merchants Bank, Mr McDonnell said.

He expected the government would particularly strengthen its credit-control measures and further restrict banks' lending capabilities.

Citi has joined BNP Paribas in recommending investors 'underweight' mainland stocks, meaning they should hold less of them in their portfolios than stocks of benchmark indices.

Lan Xue, the US investment bank's head of China research, said Beijing would focus on enforcing austerity measures as inflation remained its top concern.

'Economic and stock market liquidity will be tighter than in past years,' Ms Lan said.

Citi said the strong performance of mainland banks last year would not be repeated because of the tighter liquidity. It added that certain property stocks might also be vulnerable because of their 'rich valuations'.

'Financial market uncertainty has already halted debt issues for Agile [Property Holdings] and Country Garden [Holdings],' Citi said in a report published last month, adding that the government was cracking down on overseas investment on the mainland.

However, not everyone is so bearish on this year's outlook.

JP Morgan was more positive on the country's future performance, saying in a report that macro-control measures would help the economy grow more modestly while preventing it from overheating.

The investment bank said the government's move to restrict mainland banks' lending capability would not be as effective as many speculated because most lenders were publicly listed, meaning Beijing could no longer 'order' them about.

'The authorities can only use monetary policies and market-based means to influence banks' behaviour now and their guidance is not a binding one anymore,' the report said.

It said mainland banks continued to operate 'normally' last year even though they exceeded the total lending quota set by the People's Bank of China.