Shanghai shares rallied yesterday after a media report said fund managers increased their stock portfolios during the third quarter, fueling optimism more capital will flow into the nation's securities markets.

The Shanghai Composite Index, tracking both yuan-denominated A shares and hard-currency B shares, added 1.36 percent to 1,342.80. The A-share Index grew 1.37 percent to 1,408.81 and the B-share Index advanced 0.72 percent to 87.61.

Fund managers raised equity exposures by nearly 5 percentage points quarter-on-quarter to stay overweight on stocks with large capitalizations during the July-September period, China Securities Journal reported yesterday, citing mutual fund quarterly portfolio reports.

Some 116 mutual funds used 62.27 percent of their assets to buy shares on the Shanghai and Shenzhen A-share markets during the third quarter, up from 57.52 percent from a quarter earlier, the paper said.

"Fund managers are optimistic about the future of domestic stock markets as the government has gradually delivered on its promise to bolster the nation's capital market," said Zhang Li, a Huatai Securities Co analyst.

"Institutional investors are expected to invest more in domestic stocks in the last quarter of this year."

On Monday, Chinese insurance companies won regulatory approval to directly invest in domestic stocks. The move was part of the government's effort to draw more liquidity into the country's capital market.

China Petroleum & Chemical Corp, the country's largest oil refiner and also known as Sinopec, increased 0.23 percent to 4.42 yuan (53.25 US cents).

Source: Shanghai Daily News