Mainland-listed companies are expected to see a 1 percent drop in profits this year, compared with an average 4 percent growth in 2015, UBS Securities Ltd. said.
The CSI 300 Index, which had significantly declined over the last few weeks, closed up 0.4 percent at 3,206 points on Monday, the Hong Kong Economic Journal reported.
In November 2015, UBS Securities forecast that CSI 300 Index would fall to 3,700 points from 3,891 at the time amid sharp volatility resulting from bond defaults, foreign exchange fluctuations and uncertainties in liquidity flows.
UBS Securities chief China strategist Gao Ting said the negative factors are still expected to re-emerge but the CSI 300 Index may return to 3,700 points in 2016 due to progress in the reform of state-owned enterprises.
However, it is unlikely that regulators will reimpose the circuit breaker against sharp fluctuations in the stock market in the short term, Gao said, adding that it would take over three months to revamp the mechanism.
The investment bank holds a positive view of stocks related to basic consumption, healthcare and information technology.
H-share strategist Lu Weijie said further depreciation of the renminbi, which may weaken to 6.8 against the US dollar, will dampen investor sentiment.
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