"As fund companies and other institutional investors grow, so will their impact on the market," says Ye Xiaomei, an analyst with United Securities. "Life for individual investors is likely to get harder," she says.

Individual investors, Ye says, should change their mindset and choose to invest in the capital market in an indirect way. Bi Qiuxiang, an expert with Guangfa Securities, the country's sixth largest brokerage, agrees.

"As the market and investment becomes more sophisticated, the edge of institutional investors is becoming more apparent," Bi says. Many individual investors have inadequate time and expertise to do research on companies, the analyst says, while institutional investors have specialized professionals such as industry analysts and fund managers to do the job.

"So entrusting investment matters to fund managers is undoubtedly a wise move," Bi says. "The Chinese stock market is set to become more rational and less speculative as institutional investors' impact increases," says Xie Jing, a fund manager at China Nature Asset Management Co Ltd.

Currently, mutual fund companies are the main institutional investors in China. The number of companies reached 53 by the end of September, of which 20 are joint ventures with foreign partners.

Mutual funds managed nearly 750 billion yuan in assets, and mutual fund companies have introduced a record 58 new mutual fund products to the market since the beginning of last year. Other main institutional investors include pension funds, insurers and qualified foreign institutional investors (QFIIs).

The growth of institutional investors, experts say, could also help improve corporate governance at those publicly traded companies. Institutional investors could not only help the listed firms in their operations by providing capital, expertise and information, they could also play an important supervisory role.

Compared with individual investors, institutional investors usually have a bigger say over listed companies in which they hold shares. The development of institutional investors, which serve as long-term and stable money sources for the capital market, could also make the market more stable, experts say.

The government is continuing to take a series of measures to push the development of institutional investors. Shang Fulin, chairman of the China Securities Regulatory Commission, said in December that China would continue to encourage the growth of institutional investors.

Currently, only 5 percent of an insurer's funds can be invested. Insurance companies presently have about 1.7 trillion yuan for investment, so there would be a huge amount of money flooding the market if the 5 percent ceiling were raised even marginally.

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