Slowing China growth to cap gains in Shanghai stocks

China's slowing growth and stubbornly high inflation means Shanghai shares will rise by less than seen three months ago, a quarterly Reuters poll showed. China's benchmark Shanghai Composite Index is seen ending the year at 2,600 points, up 10 percent from Thursday's close of 2,365, according to the poll of 15 analysts taken over the past week.
This was down from a similar poll conducted in March which put the median forecast for the index at 3,125 points at end-2011, while a June poll had it at 2,850 points.
Analysts have been trimming their forecast for the index throughout the year, as policymakers rolled out a series of tightening measures to cool heated inflation in the world's second biggest economy.
"Monetary policies are not expected to change, liquidity remains tight, economic growth expectations are not strong and the company profits can also go down," said Liu Jingde, deputy manager of Cinda Securities' research centre. "All these factors cast a shadow over the market."
The People's Bank of China (PBOC), the central bank, said on September 12 that inflation, which fell in August from a three-year peak, is still too high and it would maintain its monetary policy settings despite heated debate among economists about a possible relaxation.
The central bank has raised bank reserve requirements nine times and increased interest rates five times since last October to mop up excess cash, which is partly fanning record inflation.
As a result, the Shanghai composite has fallen nearly 16 percent so far this year after losing 14 percent in 2010.
But most analysts surveyed say the worst is over.
"Though many are worried companies' profit-making ability could be dragged down by an economic slowdown, we remain positive as inflation could very well decline and the current market valuations are low," said Zhong Hua, an analyst at Guotai Junan Securities.
Annual consumer inflation eased to 6.2 percent in August from a three-year high, while economic activity slowed, underlining expectations that the central bank may hold off on further policy tightening amid worries about a global slowdown.
Still inflation will likely remain elevated for several months, holding well above the government's target of 4 percent.
In the latest poll, the index was seen at 2,935 by next June, lower than the 3,325 predicted in a June poll, but would mark a 24 percent gain from Thursday's close.