By Mao Lijun (China Daily)
Updated: 2007-09-17 09:45

When China's major stock index breached the 5,300-point psychological barrier, triggering a correction last week, Chinese investors were left wondering what would happen next.

Those with money on the line wonder if this upward trend could continue and if crisis is impending.

Related readings:  Major stock index passes 5,000 mark  Bank shares lift Shanghai index to new high  New rules to curb stock price fluctuation

Economists and stock analysts are divided about whether the Chinese mainland's bull market can continue to charge ahead, but most of them agree that yuan-denominated A-shares are overvalued.

Some analysts interviewed by China Business Weekly say the market correction is normal, and it is just to help market move towards a healthier growth path. They point out that the market's liquidity remains plentiful, and the underlying fundamentals are still strong.

They also say that the corrections were mild, which indicates the Chinese government is not prepared to take any significant measures to tighten liquidity in the near future.

Analysts say strong corporate earnings in the first half of 2007, plentiful liquidity and positive investor sentiment would drive the stock market to a new high in the medium and long terms, and the trend will continue.

"The high corporate earnings of large-cap stocks will continue in the third quarter of the year, which is expected to push the market even higher," says Chen Weiqing, chief analyst with CITIC Securities Co.

At least 70 percent of companies listed on the Shanghai and Shenzhen stock markets says that they are expecting profit growth in the third quarter.

"The booming market is sure to continue in the long term, because it continues to absorb large amounts of capital, although in the short term, it may climb slower or tumble because of the negative psychological impact of the index's hike to more than 5300," says Qin Xiaobing, an analyst with China Galaxy Securities Co.

"But the reduced investor exuberance after the index hike to more than 5,300 will allow for a healthier adjustment of markets and for the broader economy to go forward."

And the soaring asset prices and negative deposit interest rates will also continue to lure investors to the capital market, experts say.

The percentage of investment assets owned by each family in China is much lower than in developed countries. China's equity investment accounts for only 9 percent of a family's total assets in the country, compared with 22.7 percent in the United States.

A survey by the China Securities Association showed that 60 percent of investors are optimistic about the stock market's performance in the remaining months of the year.

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