Will the bullish momentum continue in the next 12 months?

As the Central Economic Work Conference sets the tone for China's macroeconomic policies in 2008, investors are speculating about how and to what degree it will affect the stock market, specifically, with an environment of higher consumer prices and a tight monetary policy.

Analysts pointed out that macroeconomic controls, the slight slowdown of public company profit growth, the continued sufficient liquidity in the stock market, as well as the launch of stock index futures, the return of "red chips", and the set up of a new board for start-up companies, will be major factors expected to impact the capital market next year.

In its latest report issued by Henan-based Central China Securities, the brokerage predicted the average net profit growth of all A-share listed companies may dip to between 30-40 percent in 2008 compared with a 50 percent year-on-year growth in 2007.

"The average net profit of all public companies have witnessed over 50 percent growth year-on-year in both 2006 and 2007. But for 2008, it is hard to maintain the same momentum as the country's macroeconomy starts to slow down," the report said.

Excessive liquidity will be other major factors to affect the performance of the stock market. The report pointed out that the A-share market would continue to witness excessive liquidity in 2008 despite the government's tight monetary policy and the expansion of the capital outflow mechanism.

"It is because the country's high-saving and low consumption economic structure could not be changed in a short term," the report said.

The report predicted that the Shanghai Composite Index may fluctuate around 6,000 points in 2008, and it could reach as high as 7,600 points, or drop to as low as 4,500 points.

"Investors should learn how to invest under an environment of higher consumer prices," Shanghai-based Haitong Securities said in its latest strategy report.

It suggested investors seek out companies that are able to control material costs or to find alternatives solutions.

In a similar report, Shenyin Wanguo Securities said that as higher prices will stimulate investors to buy more properties or stocks, sectors such as real estate, the securities business and automobile ventures will benefit.

"Besides, price hikes will also boost industries such as farm industries, feedstuff and fertilizer producers, as well as the aviation industry," it said.

(China Daily December 13, 2007)