Listed companies' poor performance and the government's tightening monetary policy will slow China's soaring stock market in the second half of this year.

A poll of five stock analysts shows that the market is not likely to enjoy the broad buoyancy it did in the first six months of 2006.

A CITIC Securities' recent research reveals a much closer connection between the excessive money supply and the boost to the stock market this year.

"Excessive money has flown into the market in various ways, and the ample capital supply has pushed the stock market up over the past months. It was especially obvious after March." Cheng Weiqing, an analyst with the securities firm, said.

Based on the trends, the analyst believes the market will experience a temporary retreat in short-term capital inflows in the second half of this year, as the government is to take further steps to curb excessive money supply.

The central bank has already taken measures to tighten the excessive money liquidity, with April's interest rate increase and July's reserve ratio hike.

But statistics show that money supply still grew in June, a sign the central bank may soon take further steps to mop up the excessive liquidity in the market, said analysts, as the high growth of forex reserves is unlikely to fall.

And as part of their latest round of policy tightening, the authorities are paying increased attention to capital flow to the property and capital markets.

Cheng believes the central bank and the China Banking Regulatory Commission will take tough measures to control loans growth, and stem capital flow into the property and capital markets.

Whereas excessive money supply is not exclusive to China, the growing concern over excessive liquidity internationally is likely to push a worldwide cycle of central bank rate hikes, which will in turn affect the flow of global liquidity to emerging markets, including China's stock market.

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