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Mainland stocks bounced back today after last Friday's dive. The Shanghai Composite Index closed at 4,046.39, up 0.61 percent. Soon after a fearsome opening at 3,970.66, the index hit the lowest point of 3,940.36. But the index held its brake, turned around and climbed all the way to the highest 4,081.43 as the highest.

On the Shanghai Stock Exchange, prices of 401 A shares went up, 362 were down and 75 ended flat. Harbin Shirble Electric-Heat achieved the sixth consecutive maximum price hike, closing at 68.92 yuan. Shandong Jiufa Edible Fungus and Zhejiang Hisun Pharmaceutical were also up to the 10 percent ceiling. While Dazhong Transportation Group was dragged 7.72 percent down to 23.68 yuan. Again China Unicom and China Minsheng Banking Corp were on top in terms of trading volume and value of transactions respectively.

The Shenzhen Component Index tracking the smaller Shenzhen Stock Exchange opened also lower at 11,356.95, but closed at 11,732.08, up 2.11 percent. It went through the day within a bound of 11,244.21 to 11,814.56. Of the A shares, 249 were up, 261 down and 99 flat. Konka Group, Fujian Sanmu Group and Jilin Guanghua Holding Group had largest gains while Guangdong Well Medical led the fall. China Wanke was on top both in trading volume and value of transactions.

Price increase in index-drivers including Sinopec, Bank of China and China Wanke squeezed out the room for further sliding. Bank of Communications is going to list on the Shanghai Stock Exchange tomorrow while the long-sides on China Merchants Bank and China Minsheng activated a new hot spot in the market and strengthened investor's confidence.

Real estate and steel sectors were strong. Led by Sanmu Group, real estate shares were up more than 3 percent. Guizhou Maotai resumed trading at 10:30 and saw its price close 2.6 percent up at 94.39 yuan. Zhejiang Hangxiao Steel Structure was punished with a penalty of 700,000 yuan for misconducts in information disclosure, but its shares rose 9.98 percent to 14.88 today.

The China Securities Regulatory Commission last Friday issued a notice to require enhancement in education for investors and improvement of supervision, the first time since mid-2005 that the watchdog has sent out a warning signal in a formal format of government file, which is believed to be the reason for the lower openings in the morning. However, it is still the bulk of floating capital that forged an upward trend.

Analysts believe that four factors may result in a short-term price adjustment in the stock market soon. The first is an effect of sheep flock. As individual investors had surpassed institutions in contribution to the latest capital inflow amount in April, their diversity in risk-aversion preference, weakness and blindness in investment and "do what the others do" habit, are very likely to bring up the effect of sheep flock, which enlarges the likelyhood of market turbulence.

Second, the accumulative effect of macro controls. Since the benchmark index broke the 3,000 barrier, there has been a vacuum period of macro policies for two months. The fact of the excessive liquidity did not press down the stocks but instead posted a long-side. Investors became insensitive to information release about new measures. But the pressure has accumulated looking for an outlet, especially after the securities watchdog expressed its intention to curb stock market bubble and develop a healthy market last Friday.

Third, the tightening monetary policy. The April results released last week have brought further tightening measures up on to the table. Researchers believe that the central bank might raise the interest rate again as early as in the second half of this month.

Fourth, the diversification effect. The change in portfolio of the domestic qualified institutional investor (QDII) product - stock investment accounting for 50 percent of the total funds, may absorb some capital inflow that will otherwise be invested directly in stocks.

Editor: Yan