Better opportunities to take long positions in the July-September quarter of 2016 are expected as market conditions are set to improve, institutional investors said.

Fund analysts said demand for and supply of capital are well-balanced, so the slow pace of initial public offerings will stabilize capital flows. Thus, policy-driven sentiments may brighten in the July-December half of the year.

A research note from Haitong Securities said as supply-side reform deepens, cyclical sectors such as tourism, food and beverage and retail will see higher demand in the second half of the year. They will be supported by increased supplies as longer holidays, festivals and family gatherings mark the second half, which typically lifts stocks in these sectors.

More than a year after the A-share turmoil started in June 2015, many investors have realized that shares of companies with strong core business and profitability, and their yields, have been stable, said a research note from E Fund Management Co Ltd.

Although more than 140 equity funds lost some 14 percent on average on their investments in the last year, some funds saw growth of more than 10 percent in the first half of this year, as their portfolios included best-performing equities.

For instance, the worth of portfolio of an equity-backed fund, which focused on companies engaged in environmentally friendly businesses that cut carbon emissions, rose 19.4 percent in the first half of this year. In the same period, the A-share market rose just 2 percent.

Among such equity funds, new players that began operations in the last six months performed particularly well because they were not affected by last year's wild fluctuations.

According to data of Shanghai-based Wind Information Co Ltd, 25 equity funds that were set up early this year reported average growth of 6.75 percent by the end of June.

Yet, 29 equity funds that were set up in the first half of this year had a combined corpus of just 11.1 billion yuan, a mere 2.92 percent of floats in the same period, and down 97 percent year-on-year.

A research note from Shanghai Securities said funds' interest in equities is dropping. But, in the near term, the situation will change as the equity market recovers.

Listed companies will start announcing their half-yearly results, and investors will see more records of companies that have been doing well. They will recover their confidence, the note said.

Wang Zhihui, analyst with HFT Funds, said investors can focus on two categories in the third quarter: the ones with proven performance and bright prospects, including the large-cap sector leaders; and the ones that benefited from supply-side reform, such as companies developing renewable energy vehicles, and semiconductor suppliers.

Wang further said hybrid, principal-guaranteed funds will be also sought after as investors lose risk appetite and prefer more stable income.

These funds may also take long positions in large-cap equities whose companies enjoy solid demand and boast proven profitability, such as firms in food and beverage, agriculture, high-tech materials, pharmaceutical and healthcare sectors, he said.