China's 763 funds operated by 61 fund management companies racked up combined losses of 125.4 billion yuan ($19.6 billion) in the first half of 2011, said the Beijing-based Tianxiang Investment Consulting Co. Ltd.

The biggest losers were the 377 stock funds that suffered a combined loss of 78.9 billion yuan ($12.3 billion), as continued tightening policies drained market liquidity and depressed confidence of investors. The Shanghai Composite Index tumbled nearly 26 percent from January to June.

Worse still, all 61 fund management companies spilled some red ink during the January-to-June period, said Tianxiang Investment.

Looking ahead, fund mangers are divided on where the market is heading. "There are no signs that policymakers will relax their monetary stance since inflation remains stubborn," said Deng Chunming, a fund manager with the Shenzhen-based Invesco Great Wall Fund Management Co. Ltd. "That means the market will continue to reel from a tightening monetary environment."

But Shao Jian, a fund manager of the Beijing-based Harvest Fund Management Co. Ltd., believes the market will draw strength from solid domestic demands and improved stock valuations.

"Moreover, economic rebalancing of the country will present investment opportunities in the pharmaceuticals, advanced manufacturing and service sectors," he said.

"China's stock markets are already past the worst period as investment in affordable housing will offset a slump in economic growth," said a report of the Beijing-based Citic Securities Co. Ltd.

"Although the monetary policy won't change its direction, the possibility of more tightening is decreasing," it said.