Stocks to shine on debt selloff

For some China investors, the outlook for bonds is becoming a compelling reason to buy stocks.

December's debt selloff, the biggest in six years, may be just the start as policymakers crack down on speculative trading, according to HFT Investment Management Co Ltd. With the Shanghai Composite Index one and a half years on from its own bubble bursting, and fresh from its steepest annual decline in five years, fund managers and strategists say stocks are finally offering some relative value.

"We prefer equities to bonds in the first half," said He Qian, a Shanghai-based portfolio manager at HFT, which oversaw 189.4 billion yuan ($27.6 billion) of assets as of Sept 30. "The market expectation is that inflation will continue to recover, and that'll benefit risky assets in the initial stages. Plus, there are other positive factors including improving corporate earnings."