Analysts said over the weekend they expect Chinese mainland stocks to post gains for the first week after the Chinese New Year holiday, following a rise in Hong Kong shares last week.
Last Friday, the Hang Seng Index closed at 20,501.67 points, up continuously 1.95 percent during its first two trading days after Hong Kong's Chinese New Year break. Other stock markets worldwide also saw more gains than losses during the week that mainland exchanges were closed.
From 1991 to 2011, the benchmark Shanghai Composite Index closed up in 15 of the total 21 first trading days after the holiday, while in terms of the first week after the New Year holiday, nine in the past 15 years have seen the benchmark rise.
Factors such as loosened credit will also help buoy the market. According to previous news reports, during the first 10 days of January, the four biggest State-owned banks issued 110 billion yuan ($17.37 billion) of new loans, while new yuan-denominated bank loans issued in January will total around 1 trillion yuan.
Still, uncertainty remains over the move by regulators allowing the national pension fund to invest in the stock market, and speculation over if and when reform of the listing system will take place.
Analysts said the following few months will see the market focused on the annual reports of listed firms, which are due to be released before the end of April, adding that the securities regulators have required listed companies to better distribute their cash dividends to shareholders.
Efforts by regulators to repatriate yuan to the mainland from Hong Kong via foreign institutional investors and cross border trade will also play a part in market sentiment.
This month, the State Administration of Foreign Exchange (SAFE) granted a quota of $600 million under the QFII (Qualified Foreign Institutional Investor) scheme. So far, SAFE has granted a quota totaling $22.24 billion to 117 institutions out of 135 approved by the China Securities Regulatory Commission.
This month SAFE issued a 20 billion yuan quota to 21 Chinese fund companies and stock brokerages in Hong Kong under the RQFII (Renminbi Qualified Foreign Institutional Investor) program.