Traders on the floor of the Shanghai Stock Exchange. [Agencies]
A 50 percent rebound in the stock market in the first half of 2009 has set in motion momentum for the remainder of the year, despite undoubted occasional fluctuations, according to industry analysts.
Reports from CITIC Securities said the economy is certainly experiencing a U-shaped recovery, with Shanghai's A-share market continuing its rebound.
Anxin Securities seemed the most optimistic when it said this round of growth could last to the second quarter of 2010 with country's benchmark Shanghai Composite Index rising to 3,800 points from the current 2,900.
Guotai Junan Securities Co also believes the A-share market will remain in an upward trend due to a recovering economy, moderately relaxed monetary policies and the improved performance of listed companies.
According to Guotai Junan, listed companies can experience a V-shaped recovery in the second half and are likely to gain 12 percent to 15 percent in annual growth by the year end, though their mid-term earnings may drop about 10 percent year-on-year on average.
Guotai Junan predicted that the Shanghai market may range between 2,300 to 3,500 points in the second half and warned the bourse might feel the impact of corrections in the third quarter.
"The biggest uncertainty is from overseas markets," said Zhang Linchang, analyst with Guotai Junan Securities.
According to the forecast by Guotai Junan, the US Federal Reserve may tighten liquidity to avert potential inflation, which will lead to appreciation in the greenback and depreciation of staple commodities. Overseas stock markets may respond with a tumble and drag down China's A-share market.
In addition, A-share valuations are somewhat higher in some industries, with the average price-to-earnings ratio about 28 times and an average price-to-book ratio about 3.2 times, the report said.
"Meanwhile, the resumption of initial public offerings (IPOs) and the unlocking of non-tradable shares may result in an imbalanced capital supply. So the market is likely to feel the impact of corrections in the third quarter," said Zhang.