The China Securities Regulatory Commission last Friday issued a notice to require enhancement in education for investors and improvement of supervision, the first time since mid-2005 that the watchdog has sent out a warning signal in a formal format of government file, which is believed to be the reason for the lower openings in the morning. However, it is still the bulk of floating capital that forged an upward trend.

Analysts believe that four factors may result in a short-term price adjustment in the stock market soon. The first is an effect of sheep flock. As individual investors had surpassed institutions in contribution to the latest capital inflow amount in April, their diversity in risk-aversion preference, weakness and blindness in investment and "do what the others do" habit, are very likely to bring up the effect of sheep flock, which enlarges the likelyhood of market turbulence.

Second, the accumulative effect of macro controls. Since the benchmark index broke the 3,000 barrier, there has been a vacuum period of macro policies for two months. The fact of the excessive liquidity did not press down the stocks but instead posted a long-side. Investors became insensitive to information release about new measures. But the pressure has accumulated looking for an outlet, especially after the securities watchdog expressed its intention to curb stock market bubble and develop a healthy market last Friday.

Third, the tightening monetary policy. The April results released last week have brought further tightening measures up on to the table. Researchers believe that the central bank might raise the interest rate again as early as in the second half of this month.

Fourth, the diversification effect. The change in portfolio of the domestic qualified institutional investor (QDII) product - stock investment accounting for 50 percent of the total funds, may absorb some capital inflow that will otherwise be invested directly in stocks.

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