Some analysts expect a share market correction. The benchmark CSI 300 Index is valued at 43 times earnings versus 24 times for India's Sensitive Index and 18 times for the Dow Jones Industrial Average.
By any valuation method, that's an expensive market. In addition,
Central bank Governor Zhou Xiaochuan is concerned about a stock market bust, after the benchmark CSI 300 Index rose more than 80 percent this year. Chinese households have opened share trading accounts at a record pace and reduced bank deposits instead of leaving their money to be eaten up by inflation.
This is a classic sign of an end of the rally. In general the institutional money comes in at a market bottom. The small investors get in at the top.
A wall of cash from China's trade surplus is complicating government efforts to cool investment, lending, the stock market and inflation. The gap from the export boom widened 63 percent in April from a year earlier to $16.9 billion.
This looks like a liquidity driven rally. Simply put, there are too many yuans chasing too few investments, meaning the money has to end of somewhere regardless of the prudence of the underlying decision.
There are strong, fundamental reasons for people to invest in China. The economy is after all growing at over 10%. However, there is also an issue of valuation -- meaning the actual value of the market relative to the market's underlying fundamentals.