Global institutional investors are waiting for the perfect time to pitch themselves into the Chinese mainland stock market next year - a market that has seen an ongoing squeeze on capital, which has left many constituent companies undervalued.

A recent forecast from Reuters predicted that the Shanghai Composite Index will rebound by 17 percent next year,[Hong Kong Company Formation & Registration] the strongest of the world's top 20 markets.

Another recent survey showed that more than two-thirds of 55 major asset managers worldwide view Shanghai as their top emerging market next year.

The basis of both bullish outlooks was the expectation that company profits will increase at a faster pace, and price-to-earnings ratios will rise in coming months, given that the Chinese economy managed to avoid anything like the nosedive in growth suffered by many other markets around the world.

Sun Jianbing, Goldman Sachs' strategy analyst in China, said he expects public company profit margins to bounce back slowly as economic growth accelerates to 8.2 percent in 2013, against this year's estimate of 7.7 percent.

For companies tracked by the CSI 300, the capitalization-weighted stock market index designed to replicate the performance of 300 stocks traded in the Shanghai and Shenzhen stock exchanges, he said, "Profits may jump 9 percent year-on-year in 2013, against an estimate of only 1.2 percent this year."

According to Wind Information Co Ltd, a Chinese financial data provider, in the first three quarters of 2012, 86.8 percent of all the 2,471 companies listed on the A-share market reported positive net income, against 91.3 percent in the same period of 2011.

Their total net profit was 1.5 trillion yuan ($238 billion) during the January-to-September period, compared with 1.61 trillion yuan from a year earlier, a drop of 2 percent.

Industrial and Commercial Bank of China, the world's largest commercial bank in terms of market value, ranked top among all Chinese public businesses by net income at the end of the first nine months.

Net profit reached 185.6 billion yuan, 13.3 percent higher than a year earlier, according to ICBC's third quarter financial report.

Total revenue increased [company registration in Hong Kong, Hong Kong company incorporation]14.1 percent year-on-year to 401.5 billion yuan during the period.

"The long-term investment value of ICBC is gradually increasing as its management and innovation capacity is improving," said Tang Yayun, securities analyst with Northeast Securities Co Ltd.

"But uncertainties from property policies and the domestic real estate market will influence investment expectations on the bank in the short term," Tang said.

He predicts ICBC will register a total net profit of 232.98 billion yuan in 2012 and 245.58 billion yuan next year, keeping it top of the profits list.

Below it was China Construction Bank, earning 158.2 billion yuan in net income in the first nine months, while Agricultural Bank of China gained 120 billion yuan, ranking it third.

The top 10 most profitable listed companies were seven commercial banks, which also include Bank of China, Bank of Communications, China Merchants Bank and China Minsheng Banking Corp, plus China National Petroleum Corporation, China Petrochemical Corporation and the Shenhua Group Co Ltd.

A recent report from Wistrategy Consulting, which provides studies and research on China's stock market, also forecast that ICBC will remain top of the profit list for the whole year, followed by CCB and CNPC.

The top 10 companies are likely to earn 1.08 trillion yuan in net profits for the full year, an 8.58 percent increase, but still well below the 18.89 percent rise enjoyed in 2011, the Wistrategy report said.

"The seven banks may gain total net income of 846.4 billion yuan this year, 48.11 percent of the CSI 300's profit, showing that State-owned commercial banks continue to hold a monopoly position in the economy," the consulting company added.

In black or red?

On the other hand, five major industries have seen big losses during the first three quarters.

Shipping companies listed on the A-share market, for instance, had total losses of 7.38 billion yuan, and iron and steel producers registered total losses of 3.09 billion yuan, according to Wind Information.

China Ocean Shipping Company, the country's largest shipping business, suffered the largest loss among more than 2,000 listed companies. It registered a loss of 6.4 billion yuan in nine months until September, its quarterly report said.

Gloomy global trading and weak market demand proved a considerable drag on the shipping giant's net profits, said Han Yichao, an analyst from Changjiang Securities Co Ltd.

"In the fourth quarter, shipping prices may rebound slightly as infrastructure construction speeds up supported by the (government's) investment policy - but a dull season is coming," Han said.

Of the 10 companies that registered the biggest losses, six were in the iron and steel sector, including Angang Steel Co Ltd, Magang Group Holdings Co Ltd and Hunan Valin Iron & Steel Co Ltd.

In the first three quarters, the steel industry registered losses of 3.09 billion yuan, against profits of 226.3 billion yuan in the same period last year.

"The problem of excess production capacity is very serious in the steel sector, which may continue to reduce profits for the whole year," Wistrategy Consulting said.

Wang Mingde, an analyst from Dongxing Securities Co Ltd, said all of China's A-share public companies are expected to see a 1 percent drop in net income this year.

By Dec 12, the Shanghai Composite Index had retreated 5.67 percent this year and remained one of the few major bourses still in the red. The fall meant it had lost about a quarter of its value since early 2011.

The average price-to-earnings ratios of A shares dropped to about 12 times, compared to 14 times in the second half of 2008.

"Overseas investors will be the main driving force to push up stock indexes next year," said Sun Yu, an analyst in China from HSBC Holdings Plc, adding that the relatively low assessment values of mainland shares have considerable room to rise.

He predicted that the benchmark index may increase by 20 percent in 2013, along with the expected rebound in the macro economy and deepened structural reforms.