End of China’s IPO freeze really bad news for stocks?

What does end of China's IPO freeze mean for markets?
China IPOs return: Should markets care?

There's not much in the way of New Year cheer for China's beleaguered stock market as it braces for the resumption of new listings that could dent demand for existing shares.

Still, the lifting of the freeze on initial public offerings (IPO) could boost sentiment and once markets have digested the new supply, focus should turn to the positive factors for the benchmark , analysts say.

(Read more: China approves new IPOs, ending listing freeze)

China has approved six more companies to list on stock exchanges on the mainland in the second batch to receive approval since regulators ended a year-long freeze on IPOs just over a month ago, state media reported on Thursday. Earlier this week, China approved the listing of five firms.

(Read more: China shares tumble on plans to lift IPO freeze)

Tai Hui, chief market strategist, Asia at J.P. Morgan Funds, said new rules governing the new listings should help boost sentiment in the stock market. In recent years, Chinese firms have been dogged by a number of accounting scandals.

"I think definitely it will give people some confidence about investing in IPOs," Hui told CNBC.

Analysts said they expected financial stocks to gain from the lifting of the IPO freeze since banks should gain from fee income related to new stock market listings.

Photo taken on December 30, 2013 shows investors looking at stock prices on screens in a securities exchange in Shanghai.
Peter Parks | AFP | Getty Images

They added that a pick-up in the global economy and expectations for concrete economic reforms from China's leadership should help stocks recover over the course of 2014.

"If the Chinese economy is going to stabilize, Chinese banks will do well," said Jackson Wong, vice president at Tanrich Securities.

Hui at J.P. Morgan Funds added: "We think China is going to be one of the better performers in Asia this year for a number of reasons, valuations have always been very attractive."

"More importantly, you should get a lot more clarity on new policies as well as a synchronized global recovery. That will be critical in underpinning a recovery in Chinese stocks," he said.

Goldman Sachs expects broad gains in China shares in 2014 and has an overweight call on the Hang Seng China Enterprises Index.

(Read more: Time to get picky on China stocks: HSBC)

Short-term pain?

The Chinese stock market will still have to brace for a deluge of new listings in the near term, analysts said.

Why China IPO rules are good for market
Why China IPO rules are good for market

More than 750 Chinese companies have applications for new listings pending with the regulator.

"With over 700 further companies looking to list this year, the clear concern is where all the money will come from to fund the equity purchases," Chris Weston, chief market strategist at trading firm IG, said in a note on Thursday.

"The fact that the Chinese market is trading on one of, if not the lowest price-to-earnings and price-to-book ratio in global markets is testament to the fear that funds will, and have been, selling long held equity positions to fund potential purchases," he added.

(Read more: Year winds down, HK IPOs just ramping up)

The benchmark Shanghai Composite stock index was one of the worst performing Asian equity markets of 2013, ending the year with losses of about 6.75 percent. That compared with a gain of 2.87 percent for Hong Kong's Hang Seng index and a stellar rally of almost 57 percent for Japan's .

"IPOs are good performers but that will dilute some liquidity from the market even with the negative sentiment right now," said Wong at Tanrich Securities. "So that's why when China said it would re-open the IPO market in January, the market has been pretty weak."

— By CNBC.Com's Dhara Ranasinghe; Follow her on Twitter @DharaCNBC