However, excessive money flowing into the capital market will only have a short-term effect. Fundamental factors including listed companies' profit-gaining abilities, the effect of stock reforms, mergers and acquisitions, and restructuring also play key roles in the stock market.

Listed domestic companies' pre interim reports showed that up untill July 7, 170 companies out of 390 reported losses in the first half year, accounting for 43.58 per cent. Another 46 companies reported a reduction of their profit in the first six months.

"Actually, listed companies' profits have fallen since 2004, with net profit witnessing a fall. Net profit in the first quarter of 2006 was down 16 per cent compared with the same period of last year." the CITIC Securities report said.

It said poor performances among listed companies would certainly not support the increase of index.

"I do not think their performance will undergo an obvious improvement over the next six months. From this aspect, the index will not rise much either," said Zhang Qi, an analyst with Shanghai-based Haitong Securities. "The market will face pressure from further initial public offerings and other capital raising activities."

Large companies like the Industrial and Commercial Bank of China are expected to issue A shares and H shares simultaneously within the year, probably in September.

Others including Air China and China Mobile, listed overseas, are claimed to be preparing to return to the home market.

Though a schedule is not decided yet, the fact that these blue-chips firms will potentially siphon large amounts of capital will certainly have a psychological impact on most investors.

Zhang believes the fact many institutional investors have gained from the first round of index hikes will make them pause before making further moves.

"But there will still be some highlights in the second half of this year," said Zhang, adding that more and more restructuring, mergers and acquisitions among listed companies will boost their value.

(For more biz stories, please visit Industry Updates)