IT is still not certain whether the key Shanghai stock index has bottomed out because trading volume has shrunk, although shares gained for the first time in nine weeks last week, analysts said.
They said over the short term, the market is likely to consolidate as investors are still cautious over possible policy tightening by the central government and the inflow of equities onto the market at the end of their lock-up period.
The Shanghai Composite Index added 1.35 percent last week to close at 3,492.89 in a volatile week when the benchmark slumped 5.5 percent on Wednesday.
"Gains last Thursday and Friday were clearly weaker than rebounds seen in previous weeks," Qian Qimin, a Shenyin Wanguo Securities strategist, wrote in a note. "Decreasing turnover meant investors were still cautious."
Qian projected that index would move between 3,300 and 3,550 this week.
Analysts said there were renewed worries over a sharp rise in a fresh equity supply in the market, as the lockup periods for a large number of shares held by institutions will expire this year.
Meanwhile, cash calls from several initial public offerings, including Zijin Mining Group, could weigh on sentiment. Zijin may raise US$1.54 billion in the Shanghai share sale. Subscriptions to the gold miner's IPO will be tomorrow and on Wednesday.
Many investors also chose to stay sidelined ahead of the release of key economic figures which could lead to further tightening measures, said Zhang Gang, a trader at Southwest Securities, who sees the index between 3,450 and 3,550 this week.
The National Bureau of Statistics is due to release this week key data, including the consumer price index for March and the first quarter.
China Galaxy Securities favors property developers, which are benefiting from the rising yuan, and nonferrous metals stocks.