China share markets have stabilized nicely after Monday's plunge, but it's not time to bargain hunt yet, analysts said.
"We see no rush to bottom fish the A-share market," HSBC said in a note Tuesday, adding the mainland market needs to see improved fundamentals before it can rally further as it faces a weak economy and earnings forecast cuts.
The Shanghai Composite closed up 1.9 percent Tuesday after dropping 7.7 percent Monday, its worst selloff since the global financial crisis in mid-2008, as brokerage and other financial shares took it on the chin after regulators announced measures to crack down on margin trading late on Friday. The index rose more than 50 percent last year. Hong Kong's Hang Seng China Enterprises Index closed 2.3 percent higher on Tuesday after shedding 5.0 percent Monday.
But while Hong Kong-listed brokerage and financial shares recovered, their A-share counterparts remained mired in losses. Citic Securities A-shares ended down 9.8 percent Tuesday after falling by the 10 percent daily limit Monday, while its H-shares rose 5.9 percent on Tuesday after falling 16.5 percent Monday.
"The policy intention couldn't be clearer from three major financial regulators that leveraged positions to speculate on the A share market should not have been encouraged," HSBC said. It expects A-shares will remain on the run, citing large pending sell orders on brokerages at Monday's market close.
In addition, the mainland has a pipeline of over 600 companies planning initial public offerings (IPOs), a move likely to increase supply "significantly," HSBC said.