IS THE CURRENT bull market in H shares any more sustainable than previous rallies? It is certainly turning a few heads after a 136 per cent gain last year.
This kind of gain means those oldest of emotions - fear and greed - are hard to keep at bay. Navigating that middle path between jumping in at the top of the market or missing out on the early stages of a multi-year bull rally is the tricky task ahead.
H shares have seen improvements in corporate governance over recent years. Some even pay dividends as well as earn profits. Yet the bull case still comes back to the opportunity to get on board what is potentially the world's biggest economy as China makes its transition to a full market economy. Also, this time the stampede towards deregulation has less chance of going into reverse as WTO-related commitments open the mainland economy to a deluge of foreign investment.
It is easy to see how foreign fund managers gaze upon China and see only a string of positive headline macroeconomic numbers. And while some H shares tripled or quadrupled in value last year, the price-to-earning ratios of many still trade in low teens. Do some extrapolations for the potential market and it is not difficult to generate some very positive scenarios.
It is also easy to raise the spectre of a bubble, but less easy to tell how big it will get or what will eventually prick it. When Fed chairman Alan Greenspan famously warned investors of the dangers of 'irrational exuberance' back in 1996, the Nasdaq did not peak for another three years.
Portfolio mangers not in this market - or bubble - face the dilemma of having to explain how they missed out on potentially a generational lift-off in the Chinese economy.
To date, the majority of the existing H shares are in heavy or commodity industries which offer a relatively transparent play on China's underlying industrial growth. Concerns about management or disclosure can be put in perspective as selling oil, aluminium and other raw materials into a market of rising prices should not require any Enron-style accounting to make the numbers looks good.