SHANGHAI: The stock market has continued to suck in investors, pushing the Shanghai Composite Index to a new record high yesterday when the exchanges reopened after a three-day New Year break.

The benchmark indicator surged to 2,716 points by the close, up 1.5 percent from the previous record, set last Friday.

It has risen a total of 130 percent, despite occasional faltering, since the rally took off at the beginning of 2006. And analysts expect the momentum will be maintained by a continuous inflow of funds, particularly from institutional investors, including mutual funds and insurance companies.

This rally is sustainable because "it is a very healthy rally", said Erwin Sanft, head of China Research of BNP Paribas Securities of France. Sanft said the Chinese stock market bull run was underpinned by the buying of stable long-term funds that focused mainly on blue-chip stocks.

"It is not a rally led by small-cap poor-quality stocks," he stressed.

Sanft and others estimated that the average PE (price-to-earnings) ratio of blue-chip stocks could go beyond 30 times from the 20 times at present. The PE ratio of small-cap stocks could go even higher to 40 to 50 times, they predicted.

Continuing the trend set over the past 12 months, turnover on the Shanghai Stock Exchange yesterday rose 40 percent from last Friday to 83.95 billion yuan. The average daily turnover in 2006 amounted to 23.7 billion yuan, up about 190 percent from 2005, indicating the scale of the capital inflow into the stock market.

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