As the mainland's stock markets bounce back from the abrupt falls of the last two weeks to within a whisker of their late May highs, few outside observers doubt that a dangerous bubble is inflating in mainland equity prices.
Investors in Shanghai and Shenzhen disagree. The hundreds of thousands who are opening brokerage accounts and plunging into the market clearly think prices are attractive even at current levels.
According to a new research report, they might be right.
In a paper released last week, Z-Ben Advisors, a respected Shanghai-based consultancy which researches the mainland's fast-growing asset management industry, argues that outside analysts scared of a bubble are making several key mistakes in their assessment of the mainland stock markets.
Z-Ben gives short shrift to the idea that the recent run-up in the markets is driven purely by excess liquidity, and refutes the argument that the stocks are necessarily overvalued at price-to-earnings ratios of 40 or more.
Z-Ben analysts maintain that liquidity cannot be the sole driver of the current bull market. They note that mainland savers have been sitting on mountains of idle cash for years, but that it is only recently they have been punting in the stock market.
The report's authors have a point. This is not the first time inflation has exceeded bank deposit rates, providing a heavy incentive to invest in stocks. In 2004, consumer inflation reached 5 per cent while bank deposits paid less than 2 per cent. And in 1994 inflation topped 25 per cent when three-month deposits paid a measly 5 per cent. There were modest market rallies on both occasions, but none of the mass participation seen in recent months.