China's stock market sees mild rebound

China's stock market saw slight gains on Monday, indicating that the recovery from the sell-off a week ago has remained mild due to lingering concerns about economic prospects.

The benchmark Shanghai Composite Index rose 0.81 percent to 1,995.24 points, with turnover decreasing to 62.7 billion yuan ($10.2 billion) from 77.5 billion yuan on Friday.

Companies in the media and culture, food, information technologies, and pharmaceutical sectors led the rise.

"The panic selling seen last Monday has stopped due to the easing of the liquidity crunch, and the market is on a recovery course," said a China International Capital Corp report.

"However, we believe that the central government now has stronger tolerance for slower economic growth and overall liquidity will remain tight in the future. Investors should not have over-optimistic expectations for a sharp rebound."

China's overnight interbank interest rates spiked to historical highs in late June. Instead of injecting liquidity into the market, the central bank urged banks to better manage liquidity and improve asset-liability structures.

The resulting credit crunch triggered panic selling of equities, pushing the benchmark SCI index down 14 percent in June, the biggest monthly retreat since last year. The market capitalization of the A-share market shrank 3.47 trillion yuan.

Although the market has stabilized since then, investors are bracing for more bearish factors to test the bottom of the equity market in the coming months.

A total of 269.536 billion shares - worth 717.688 billion yuan based on Friday's closing price - will be freed from a lock-up period and will be for sale on the Shanghai and Shenzhen stock markets in the coming month, according to an estimate by Securities Daily.

On the other hand, investors are expecting the IPO market to restart in late July.

The China Securities Regulatory Commission has suspended IPO approvals since last November, and is carrying out more stringent examinations of applicants' financial and legal situations, to combat fraud and protect investors.

According to the CSRC, 83 companies have passed the examination for the IPO and are now waiting for the market to give an indication of their valuations.

Earlier reports said that these 83 companies will raise 55.8 billion yuan.

"There is no causal relationship between IPOs or share unlocks and the retreat of share prices. However, when liquidity is tight and investors lack confidence on the fundamentals, both can easily be taken as bearish messages," said Nova Xing, an analyst with a mutual fund in Shanghai.

The HSBC/Markit Purchasing Managers' Index, or PMI, for June retreated to 48.2, the lowest level since September 2012, indicating a further weakening of the manufacturing sector.

Meanwhile, President Xi Jinping said on Saturday that China wouldn't assess the performance of officials simply based on their economic records. Instead, welfare improvement, social development and environmental quality are important indicators to evaluate leaders.

Zhang Zhiwei, an economist with Nomura Holdings, said that Xi's statement was an important message to local government leaders, who now have strong incentives to push up investment under the existing "GDP growth-oriented" performance evaluation framework.