After a dispiriting period of weak performance with a very light turnover, the bets are on blue chip shares on the Chinese stock market to lead a new round of post-holiday rallying, analysts said.
"The direction of the index will ultimately depend on the performance of blue chips and heavyweight stocks. Only a strong rally of blue chips supported by heavy capital inflow will drive up the general market," said Zhang Qi, an analyst at Haitong Securities.
Among the blue chips, bank shares are expected to be top performers as the Chinese banking industry is likely to outpace its peers in Asia to deliver the highest returns in the next few years. Zhang noted that most blue-chip shares were currently undervalued so there was potential for growth. Further, investors' expectations on the introduction of new financial tools including index futures to boost share prices of heavyweight companies had not been fully absorbed by the market.
However, many analysts predict that the market in the first quarter will continue to fluctuate around the 3,000 level, although the lower-than-estimated increase in consumer prices in January bolstered speculation of a delay in initiating a tightening of economic policy by the government.
The National Bureau of Statistics reported earlier that China's consumer price index (CPI) rose 1.5 percent year-on-year in January 2010, slowing from a 1.9 percent rise in December and coming in below market expectations of 2 percent.
But the lower-than expected CPI figure did not wipe out fears of a possible rise of the benchmark interest rate as the country's lending surged to 1.39 trillion yuan in January and property prices in 70 cities across the country rose 9.5 percent year-on-year, the fastest pace in 21 months.
The Shanghai Composite Index has slipped by about 9 percent this year, becoming one of the worst performers among the global markets. It was largely dragged down by concerns over tightened monetary policy. Market observers expect the Chinese central bank may hike the interest rate before the end of March.
Analysts pointed out a solid support base has not emerged and the market may also bear pressure from the supply side as it will see a peak of initial public offerings and floating of non-tradable shares in the first quarter. There will be a total of 43.4 billion non-tradable shares to float in the A-share market between February and December in 2010, according to statistics from Wind Info.
Meanwhile, uncertainties in the foreign markets could also cast a shadow on the domestic stock market.
