The Shanghai Composite Index, which tracks both yuan-denominated Class-A shares and hard-currency Class-B shares, would trade between 1400 and 1700 points next year, according to an analysis report published by the company.

"It would be still a transitional year as institutional investors would be still looking for a new money-making mode," said Gui Haoming, the company's senior analyst.

As the China Securities Regulatory Commission wages an intensified campaign against market irregularities, institutional investors find the traditional practices of insider trading or share manipulation unworkable.

The internationally acceptable standard is to look at the profitability and fundamentals of listed companies when deciding on investment strategies. But institutional investors have found few firms listed on the Shanghai and Shenzhen stock exchanges measuring up to the standard.

"Due to the fact that the overwhelming majority of domestically listed firms were formerly state-owned enterprises, they are poor in corporate governance and often mired in earnings scandals. Lots of listed firms are not capable of achieving sustained profitability and their asset restructurings are just intended for dressing up the financial data," said the report.

From 1994 to 2001, the per-share earnings for domestically listed firms fell from 0.318 yuan to 0.135 yuan, said the report.

(Shanghai Daily December 2, 2002)