A bearish mood dominated the Chinese stock markets in the first half of this year with the benchmark Shanghai Composite Index dropping 26.82 percent by June 30.

On June 30, the Shanghai Composite Index fell to 2,398 points, the lowest in 14 months, on concerns of tightening measures in the real estate market and on money supply.

"Stocks will decline further," said Li Jun, a strategist at Central China Securities Holdings Co. "We'll soon see not-so-optimistic economic data in July and there's no sign of a reversal in the tightening policies."

Agricultural Bank of China Ltd. (ABC), the last "big four" state-owned commercial bank that has not been listed, started issuing shares in Shanghai and Hong Kong stock markets on July 1. It is expected to be the biggest initial public offering in the country, and will absorb $21.5-23.8 billion.

The scale of the listing triggered fears of an investment shortage in other stocks, as many investors have sold shares to buy ABC stocks.

But some analysts believed the timing of the massive market loss is just right. Chinese stocks are still the most "overvalued" in Asia, excluding Japan, even after a drop in the market's premium, according to Credit Suisse Group AG.

Morgan Stanley, BNP Paribas SA and Nomura Holdings Inc. expected a stock rally citing China's June 19 decision to end the yuan's two-year peg to the dollar, which could help curb inflation and asset bubbles.