Investors taking stock as fortunes start to improve(3)

Feeling bullish?

A healthy stock market would provide welcome relief to the army of demoralized investors, but it would also be a boon to many cash-strapped enterprises at a time when easy credit is a thing of the past. According to media reports, around 800 companies are in line to float on the stock market.

But unsurprisingly, a number of analysts and investors remain unconvinced that the market is ready for a massive revaluation, despite the improved economic fundamentals. They contend that the latest earnings announcements indicate little improvement in the potential for corporate earnings.

The average price-to-earnings ratio has already adjusted upward to more than 12 times from about 10 times in the past few months. However, further readjustment will depend on the projected performances of major publicly traded enterprises in key economic sectors such as property, finance, energy and telecommunications.

And that, according to analysts, is a big if.

"At this point, after the recent gains, we no longer think that Chinese equities are that cheap," according to Credit Agricole's Kowalczyk.

Although Chinese stocks remain attractive when viewed through the prism of price-to-earnings ratios, operating margins are relatively high, which increases the chances of a correction, and "our measure of the macroeconomic environment is not favorable either", he said.

However, not everyone is downbeat. "Economic recovery will continue. Macroeconomic policies are stable and the PMI purchasing figures have been positive. The new round of urbanization will expand consumption and investment. QFII and RQFII (qualified and renminbi qualified foreign institutional investors) will support market liquidity. The Shanghai Composite Index will run between 1,950 and 2,500 in the first half of 2013," wrote with Shenyin & Wanguo Securities Co analysts Jian Bijia and Chen Tong in a report in January.

Whatever the long-term result, the current situation has come as a welcome break from the long days of gloom and doom in 2012, when approximately 4.3 trillion yuan evaporated from the A-share market alone.

As long as the market doesn't slip back to those sorts of levels when trading resumes on Monday following the weeklong Spring Festival holiday, investors will feel that their stock is rising.