Global fund managers remain modestly underweight in Asia ex-Japan, while adding to their weightings in China and Hong Kong, the latest Citigroup analysis of fund flows shows.

Hong Kong, which has been the stock market in Asia where global fund managers have the highest consensus overweight, experienced a further boost in its weighting in end-August. The more bullish sentiment for Hong Kong supports the $770 million in net inflows in September to funds investing in that market, higher than the $260 million net inflow in August.

China remained on the list of stock markets in Asia where global fund managers are underweight, but has advanced from the bottom of the ranks at the expense of Taiwan and South Korea. In September, global funds investing in China had a net inflow of $1.5 billion, a turnaround from the $863.8 million net outflow in August.

Elaine Chu, Hong Kong-based regional equities strategist at Citigroup, attributes the improved sentiment for both Hong Kong and to China to the qualified domestic institutional investors (QDII) program, which ôis mainly responsible for driving this momentum.ö

Technically, the higher weightings for both Hong Kong and China could also be due in part to fund managers raising their allocations in those markets to keep up with their respective benchmarks, which have also risen in value, Chu says.

Country weightings of Asian fund managers differ slightly from those of global fund managers.

Asia ex-Japan fund managers are also most underweight in South Korea on-average, but are most overweight on-average in Indonesia. The difference has to do with mandates of global funds. Many fund managers who run global portfolios tend to allocate mostly to US and European markets, and Asia usually gets only around 5-6% of that money.

Global fund managers have become more willing to take on risk, as reflected by their cash positions. The consensus cash position of global fund managers fell to 2.8% of their portfolios in end-August from 3.8% in end-July. Many fund managers usually set an upper limit for cash holdings at 5% of their portfolios and tend to be closer to that limit when they are more bearish.