The Shanghai Composite Index, the world’s worst performer in past 20 dealing days, may temporarily fall more according to the report of sustainable economic recovery.

Former Morgan Stanley Asian economist Andy Xie, well known as a bearist in China, said the index “should be 2000 or less” which is another 25 percent lower from this position.

Authorities data supports the parlance that banks financing greatly boast both stock market and real estate market in the past few months. It is about time to rein in lending to avert bigger asset bubbles and besides, policy makers noticed the overcapacity phenomena in some industries such as steel and cement.

Even in spite of the tightening credit market, China equities remain alluring spot among global stocks thanks to the nation’s growth potential comparing to the bleak western. In the view of accounting, some Chinese stocks are trading at the steepest discount in the world compared with analysts’ price targets after the month-long slump. Some analysts recently adjusted their forecasting for China’s economy to 9.4% from 8.3 per cent, accordingly, Gross domestic product may increase 11.9 percent in 2010, higher than an earlier estimate of 10.9 percent.

Short term trading will be very volatile but we believe a strong economic recovery is underway in China and remain quite positive on the long-term growth potential. The A share market is undergoing a correction rather than a bursting of the bubble, I forecast the market will perform very well in this month before National Holiday, much better than those conservative expectation.

What I am worrying about is not the economy itself, I am waiting for the moment of real bubble bigger enough.

NCTY, one of the biggest Chinese gaming company, reported that Q2 ’09 revenue declined 32% to about $40 million while the company swung to a loss of about $12 million from a gain of $14.5 million in Q2 ’08, The9 lost its license to run the “World of Warcraft” in China few months ago so that most expected its business to take a hit.

In fact, The9 made a stratagy mistake in the process of arguing with WoW owner Activision Blizzard in April. Blizzard finnaly chose competitor NetEase to operate the game in China after  The9′s license expired on June 7. Given that WoW consisted of nearly all of the company’s revenue, it’s obvious The9 has no alternative plan to revive its business,even though its management said in the earnings release that it had invested in a few game development studios and had entered into licensing agreement for other games like World of Fighter andKingdom Heroes 2.

Investors in NCTY must be painful for the losing of 40% from $13 since the news of WoW released, however, the worse is: whether The9 itself know how to survive the firece competition, certainly, long term investors may hold their hope because of the vaule of cash in The9 is more than the market capital.

China stock

China investors experienced pains again and suddenly they were pulled back into the reality after losing 10-20% money. I see this decline in the past few days as a normal correction after five months of steady gains, I believe the stock market will continue to rally in the second half as most government officers and analysts start to believe ” the global and Chinese economies recover and as corporate profits continue to improve”. Based on their belief and massive crazy but blind investors, I guess the market may soar again even though I m quite not sure if the coming future is that bright.