Shanghai shares are set to rise further this year recouping most of the losses logged in 2010, though concerns over monetary tightening could lead to a temporary dip next quarter, a Reuters poll found. China's benchmark Shanghai Composite Index will likely close the year at around 3,125 points, up about 6 percent from Thursday's close of 2,946.71 points, according to a poll of 16 analysts conducted over the past week.
For the year as a whole, the market is expected to rise over 11 percent, reversing some of the 14.3 percent drop in 2010 that made it one of the worst performers in the world as policy uncertainty hung over investor sentiment.
It will not be a steady march upward, however.
Six of the 16 analysts polled expect the index to breach its recent lows of 2,850-2,900 points and fall to as low as around 2,625 points over the next couple of months before regaining its upward momentum, according to the poll.
The central bank has raised interest rates and required reserves multiple times in the last several months to try to contain consumer inflation, which reached 4.9 percent in February.
Still, the Shanghai market has outperformed so far this year, as concerns over the impact of the efforts to combat inflation have eased somewhat.
The index has gained 5 percent so far this year, compared with around a 2 percent fall in MSCI's index of Asia-Pacific shares outside Japan.
Chinese lenders, whose shares have been hit by the recent tightening steps, could support the market recovery, even though many analysts expect further rises in interest rates and required reserves. Some lenders including Bank of China have said they may cut their dividends in order to help preserve their capital as they scramble to meet tougher capital requirements.
The Shanghai-listed shares of Industrial & Commercial Bank of China, the world's biggest bank by market valuation, have risen 4 percent so far this year. No 2 lender China Construction Bank, which is also the largest mortgage lender in the country, saw its Shanghai-listed shares up 9 percent so far this year.