Listed companies anticipate better conditions for liquidity during the second half

Looser policies designed to stabilize the macroeconomy will help fuel a recovery in share prices during the second half of the year and bolster sagging capital market sentiment, analysts said on Tuesday.

China's economy grew at its weakest pace in 18 months in the first quarter, expanding by 7.4 percent, lower than the 7.5 percent official target. Although there are signs that the economy may be gaining strength, with the official Purchasing Managers Index readings rebounding in June and electricity output increasing, policymakers are considering more measures to offset pressure from the rapidly cooling property market.

"The economic growth in the first six months has been below expectations, and we believe the authorities will take more mini -stimulus measures during the second half of the year to achieve the full-year GDP growth target of 7.5 percent," said Yang Delong, chief strategist with China Southern Asset Management.

Chinese banks were permitted to remove three types of loans from scrutiny on Tuesday, including funds lent under the central bank's re-lending facility to support small enterprises, and commercial bank loans from international financial institutions or foreign governments. The announcement by the China Banking Regulatory Commission is seen as a step that will boost lending and inject liquidity in the interbank market.

"It is highly likely that liquidity conditions will improve in the second half of the year," a report issued recently by China International Capital Corp said. The institution maintained the target of gains up to 20 percent for A shares in 2014, with large-company shares outperforming small caps.

The report said although initial public offerings will impede market performance, ongoing reforms will improve prospects for sustained middle- and long-term growth.

While the factory sector has rebounded and the Chinese economy stabilized closer to the government's 7.5 percent growth target, it appears that more stimulus is in the cards, Barclays said in a report issued last week, predicting that more policy easing, including interest rate cuts, is "unavoidable" in the second half.

The Shanghai Composite Index has fallen more than 4 percent year-to-date, after retreating 11 percent in 2013, making it the worst-performing market in the world.

The SCI recovered slightly by 0.1 percent to 2,050.38 on Tuesday, and turnover expanded to 83.5 billion yuan ($13.5 billion) from 80 billion yuan on Monday, extending a positive opening for the second half of the year. Some optimists believe that the turn is just around the corner.

"China's economy is walking out of the shadow of the international financial crisis, as exports and export-related investment recovers, a scenario which had been awaited by investors in the last seven years," said Gao Shanwen, chief economist with Essence Securities.

Although the real estate industry is undergoing in-depth adjustment, "we expect sales to bottom out in the second half of the year. The possibility of large-scale collapses in the property sector appear unlikely", he said.

"The stock market will see several corrections and hit rock bottom during the third quarter. There will, however, be a rebound in the fourth quarter with domestic demand stabilizing," Gao said.

A total of 951 listed companies had released half-year earnings estimates by Sunday. Out of this, 621 companies, or 65.2 percent, are expecting to report profits, with companies in construction engineering, interior decoration, automotive and biomedicine expected to fare well, the China Securities Journal reported on Tuesday.