By Jin Jing (China Daily)
Updated: 2008-01-14 11:58

Most fund managers and analysts agree that listed companies' profit growth will have the largest impact on stock market performance.

Around 95 percent say listed companies' profit growth is expected to slow to around 30 percent this year due to the expected slowing down of world's economy and decreased equity investment gains, which will drag down the speed of the fast rising stock index, which will dampen investors' sentiment.

"China's rapidly developing economy laid the foundation for the continued profit growth of listed companies, though the growth of the annual corporate earnings is expected to slow down to around 30 percent this year instead of 50 percent in the past," Pan says.

"China's stock market performance is a combination of many factors, including what the sluggish US economy will bring to the world and what specific tightening measures the Chinese government will take. All of the above involves a lot of uncertainties," says Lin Wenjun, chief economist at Fullgoal Fund Management.

But stock market fundamentals remain unchanged, analysts say. "China will continue to benefit from cash inflows from the international market as the US dollar depreciates," says China International Capital Corp Ltd.

Shenyin Wanguo Securities says that the plentiful liquidity will likely support A share companies priced at high valuations, but the large amount of non-tradable shares to be converted to tradable shares in the second quarter this year will lead to price fluctuations.

Citic Securities says that the high corporate earnings and the gradual liquidity tightening measures will keep the bull market for a long time.

The survey shows that analysts and fund managers acknowledge the stock market bubble. "If we look at the current high price-to-earnings (P/E) ratio, the stock market has a bubble, but it's not big," Lin says.

"Some stocks have a bubble, and some not. I am still positive on stocks in the financial sector. Most are highly circulated," Yuan says.

"A reasonable P/E ratio is around 20 times. Stocks in the consumption and investment sector, and middle and small cap stocks, still have investment value," says Wang Chun, a fund manager with HSBC Jintrust Fund Management Co Ltd.

According to annual reports from 11 mainland security houses, companies in the consumption and aviation sectors are expected to have stable profit growth next year. Steel, construction materials and electric power companies are also expected to benefit from the rising prices of processed products, which often outpace the increasing costs of raw material.

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