Stocks may still have more room to run, but the recent upsurge and return of investor exuberance signal it is time to lock in gains before a correction, says Howard Wang of JP Morgan Asset Management. 'We will lay low and take a little bit of octane off our funds and wait for a pullback,' said Mr Wang, the head of the fund house's Greater China team. 'A pullback will be painful, but you need that to remove excess optimism.' The Hang Seng Index just cruised to its third consecutive monthly gain on the back of a staggering 60.17 per cent rally from its year's low on March 9. Current valuations for the benchmark have since zoomed to the highest in more than a year. The rally has been driven by early signs of a recovery in key overseas economies, fuelling hopes that the global recession may be losing its grip. And money has finally started flowing back into the markets as investors grow tired of stashing cash in the low interest-rate environment. Companies have been eager to tap the market amid the thaw in sentiment, giving rise to a flurry of fund raising. Bank of America Corp, Wells Fargo, ANZ Banking and Lloyds Banking Group are just some of the heavyweights that unveiled plans last month to raise billions. 'We certainly feel a lot more cautious at this time because of the size of the move [in stock markets] and the type of companies that are raising money overseas,' Mr Wang said. 'Expectations are getting too high.' The market has one-upped expectations throughout the recent rally. Initially tagged a technical bear market rebound, it was later supposed to fall prey to the 'sell in May, go away' adage. But stocks have continued to rise and the Hang Seng has gained more with each ensuing month over the three-month rally. But markets might be starting to get overheated, Mr Wang said. However, he did not expect a correction of more than 10 per cent in the near term because buying interest was still strong, especially since foreign investors had started pumping money back into emerging markets. Buoyed by the influx of funds, turnover in Hong Kong topped HK$90 billion, or five times, last month after doing so only once in the past eight. Market watchers said the stream of liquidity could persist while foreign investors tried to rebuild their positions in the region's equities. 'What has prevented us from getting more cautious is that there is a tremendous amount of liquidity on the sidelines earning zero,' Mr Wang said. '[But] it is [still] incredibly dangerous to be betting on liquidity.' Mr Wang is still bullish on the long-term prospects for mainland-related equities. But he said he had already taken money off the table following the recent run-up by reducing some of his positions in cyclical stocks. He has started fortifying his portfolio with a value bias, focusing on large-cap laggards and also adding to his cash positions. 'It's definitely the stage where risk versus reward does not look as good.'