The Chinese stock market is likely to remain weak and directionless in the days ahead as uncertainties about Beijing's macro-policy stance may continue to weigh on it, anlaysts said.
"The market seems to have entered a period of policy vacuum and it lacks a strong positive catalyst to trigger a sustained rebound," said Lu Yu, a strategy analyst at Great Wall Securities.
Lu said that investors may have to bear with the market's current weak trend for some time as signs of a turning point are unlikely to emerge until July when the prospect of the government's macro-economic policy for the second half of the year becomes clearer.
The benchmark Shanghai Composite Index posted the biggest loss in three weeks last Friday by declining 1.84 percent, led by pharmaceutical, technology and consumer companies.
Analysts said that the fall was caused by significant capital retreat from the small and mid-cap stocks of excessive valuations amid uncertainties of further monetary tightening and slowing economic growth.
The fear of the mega initial public offering (IPO) of the Agricultural Bank of China in mid July may also drag down the prices but investors are betting that the government would step in to boost the weak market sentiment in preparation for the bank's flotation.
Lu said that the recent gains in bank and developer shares are unlikely to last long and room for further rises will be limited as worries about the negative impact of the property tightening measures still linger in the market.
Dong Xian'an, chief economist at Industrial Securities, said that investors need not be overly pessimistic about the stock market as Beijing may soften its tone on its policy tightening in the second half of the year.
"It is highly likely that the government may shift its macro policy stance from preventing overheating to avoiding overcooling in July," he said. "We think that in the short term opportunities outweigh risks for cyclical stocks such as steel and commodities."
Steven Sun, China strategist for HSBC Holdings plc, was quoted by Bloomberg as saying that Chinese stocks may gain 15 percent in the "coming months" as concerns may ease over an oversupply of shares and the economy withstands Europe's sovereign debt crisis.
Analysts expect the current rocky market conditions may force ABC, the last of the big four State-owned lenders to list, to scale down the size of its share sale as it may raise less than initial estimates.
"Now is the time to look for a 10 to 15 percent rebound in the coming months" as banks cut the amount of capital they planned to raise, Sun said.
"The Chinese economy should continue to grow 9 percent in the second half. We're not forecasting a double-dip scenario, given the still-robust export and import numbers, and also resilient consumption," he said.