Like so much hot air, hot money is inflating mainland stock valuations, and the lure of share prices that seem to just keep rising is becoming irresistible to novice investors. Typical of those willing to take what they regard as a low-risk gamble to make a quick profit is Chen Zexuan, a project manager at a Sino-US joint-venture car parts maker. Last month, Chen suddenly transferred the 2 million yuan (HK$2.33 million) savings he had accumulated for a property purchase to a brokerage account to begin punting for quick trading profits on the market. 'I saw a ray of hope in the stock market when trading volume jumped sharply,' Chen said. 'Every time capital inflows take place, a rally is started.' Chen is aware that excessive capital flows or 'liquidity' is driving share prices higher, and also that the hot money flows are not stable. But he is concerned only with the immediate outcome, not the stability of the money flows. 'It doesn't matter whether it is corruption money or hot money,' he said. 'It is always a see-saw game between the property and stock markets - when the property market shows signs of retreating, it is time to look at stocks.' That attitude has rung alarm bells among analysts and economists who know only too well that what goes up so fast is certain to come down just as fast - and that stock values have been inflated beyond sustainable levels. The Chens of the world, they fear, could see their savings decimated when today's boom turns into tomorrow's bust - and the first tremors of that bust might have struck the market last week, they warn. Helping drive those share prices higher has been speculation about an appreciation in the exchange value of the yuan, which has increased capital inflows betting on making exchange gains. Technically those inflows cannot be parked in the mainland's stock market, which is off-limits to overseas investors because of the inconvertibility of the yuan under the capital account. However, where there is a will there is a way, and that hot money has found its way into the volatile market through underground banks in the past few months, some observers said. As to the extent of the hot money inflows, data is sketchy, According to Li Youhuan, a professor at the Guangdong Academy of Social Sciences and a researcher into fund flows, hot money inflows hit a record high in the August-September period, although he would not provide an estimate of the amount. What is known, however, is that on November 2, trading value on the Shanghai market was more than 300 billion yuan - nearly triple the amount in early August. Brokers confirmed the trend. 'Many retail investors believe the present rally could be sustained until the end of the year,' West China Securities trader Wei Wei said. 'They think it is easy to get a quick 10 per cent return in that time.' Shenyin Wanguo Securities reported that clients deposited an additional 10 billion yuan into their brokerage accounts in September alone. The over-optimistic small investors who believe share prices have only one direction in which to go, namely upwards, have already received a nasty wake-up call. Last Friday, the benchmark Shanghai Composite Index fell 5.2 per cent, its biggest single-day drop in 14 months. The sudden sharp fall gave mainland investors a rude reminder that a boom-to-bust cycle could be inevitable since the speculative funds flooding the market in September had already gained more than 15 per cent from the recent rally. 'After all, it should have been obvious that the hot money would cash in on the recent gain,' Bohai Securities' analyst Zhou Xi said. 'The profit taking just came sooner rather than later.'