The standard perspective on the mainland stock markets, at least among those directly involved, is that the A-share bull market can continue indefinitely. This is deluded nonsense, but Hong Kong's officials seem to concur. The popular perspective in the mainland is that the bull run in mainland stocks is real and driven by genuine improvements in both the market and the economy. The argument goes something like this: the 2005 reform of the rules governing the state's holdings of non-tradeable shares fundamentally strengthened the country's stock markets. At the same time, mainland companies made huge leaps in their corporate governance, accounting standards and level of disclosure, while managements responded to new incentive-based pay schemes by raising their game to new heights. The changes boosted popular confidence in the stock market, while the resumption of stock offerings - especially in reputable companies - caught investors' imaginations. With the mainland economy growing an annual rate of 11 per cent or more and listed companies making spectacular productivity gains, corporate profits soared and so did share prices. Over the past two years, the CSI 300 index of leading A shares has risen an astonishing 472 per cent. According to this view of the markets, the bull market has solid underpinnings and a lot further to run. 'The fundamentals behind the rally are intact,' says Chen Hong, chief investment officer at Fortis Haitong Investment Management, one of the mainland's leading fund management companies. 'They are positive in the long term.' Mr Chen says the market is being powerfully supported by liquidity flows into stocks as investors withdraw their savings from bank deposits offering interest rates below the current rate of inflation. 'The household shift into equities is far from over,' he says. Observers sitting a little less close to the action are more sceptical. Some fret that the spectacular first-half earnings growth of 60 per cent or even 70 per cent at many mainland firms was driven less by productivity gains in their core businesses than by speculating in a rapidly rising stock market. Stripping out likely earnings gains from asset inflation bumps, price-earnings ratios for A shares are up from about 50 times to nearly 100, approaching levels seen for Nasdaq-listed stocks at the height of the dotcom frenzy in early 2000. This is deeply into bubble territory, and any market that has risen so far so fast to such inflated valuations must be vulnerable to profit taking. Plentiful investor liquidity may provide little defence. It need not take much of a scare to prompt individual stock investors to cash in their gains and return money to the banks. And once the process starts, the trickle could rapidly become a flood. This is the market to which Hong Kong officials want to link the Hong Kong stock exchange when most people would be running a mile. In an essay published over the weekend on his internet site, stock exchange independent non-executive director David Webb argued that 'when the mainland bubble bursts, it will certainly take the Hong Kong market down with it'. Mr Webb's prediction of a 40 per cent to 50 per cent correction for the Hong Kong market is not yet a foregone conclusion. But the government's efforts to forge a link with mainland markets risk making it so.