A recent survey of A-share investors in Chinese mainland found that 70% of the respondents thought they were investing in a bubble, which was consistent with the views of most foreign observers.

It is said that by one standard, the price-earnings ratio of China mainland A-share market is as high as 70 times. To make matters worse, it is said that 30% of the income comes from investment income (that is, stock trading), which has actually become a huge Ponzi scheme.

These problems, together with China's reputation as a "problem" in mainland accounting practice, and the threat brought by the lifting of the ban on non-tradable shares of US$ 65,438 +0.3 trillion in the next two years, it is no wonder that the mainland A-share market has dropped by about 36% from its high point.

So, is the current adjustment of the A-share market only the first stage of large-scale selling? This is unlikely.

In fact, it is difficult to find evidence about bubbles. Take valuation as an example: the current P/E ratio of the benchmark Shanghai and Shenzhen 300 Index is 23 times that expected in 2008. This is not cheap, but it is far from the bubble valuation we think, and it is also lower than its annual average price-earnings ratio of 30 times 10. Since the stock price has been adjusted back by 25%, how did the P/E ratio of 70 times drop to 23 times? First of all, bearish stock critics pay attention to the smaller but higher-priced Shenzhen stock market and review the performance of the past 12 months. Secondly, the performance in 2007 increased by 48%, and market participants generally expect the performance to increase by 32% this year.

Although considering the global economic slowdown, 32% seems to be an ambitious figure, but 7% of it comes from a one-time tax rebate, and it is possible for China's nominal gross domestic product (GDP) to increase by about 15%, and the pre-tax profit to increase by 25%-especially when banks, oil and commodities are the main driving forces.

What about the investment income (which must have turned into a loss by now)? In fact, no matter in the past or now, the figure of 30% is misleading, because "investment income" includes all operating income from joint ventures and affiliated enterprises. Excluding these incomes, we find that only 9% of non-financial income comes from some form of asset revaluation.

How much trust can we have in these data? At present, the constituent stock companies accounting for more than 70% of the market value of the Shanghai and Shenzhen 300 Index are audited by the four major accounting firms using International Financial Reporting Standards (IFRS): the risk of accounting negligence in China Mainland is not higher than that in other emerging markets.

The ultimate problem that may destroy the A-share market is the lifting of the ban on non-tradable shares and the threat brought by the current influx of non-tradable shareholders into the market.

However, a quick look at the A-shares that have been banned since 2006 shows that only 10% of the non-tradable shares have actually flowed into the market. In fact, more than 75% of the shares released from the ban belong to the government. They are unlikely to sell these shares at the same time. It is more likely that the situation will be provided by the government itself-that is, the government will control the supply of stock issuance to continue to cultivate a healthy and developing market.

In fact, increasing the stock supply is essential for a sustainable market. The valuation of A-shares has been high, because the ratio of the market value of tradable shares to GDP and savings in Chinese mainland is still far below the level of other emerging markets and developed countries.

In other words, compared with the high "demand" of depositors, the current "supply" of stocks is not sufficient (especially considering that the current real interest rate is negative). In the next few years, the supply and demand level of stocks may rise rapidly, which will inevitably lead to higher volatility.

Do these situations have an impact on international investors? As the constituent companies that account for 72% of the market value of MSCI China Index have been listed in Hongkong and Shanghai (the proportion is increasing every month), the answer is yes. Hong Kong investors pay close attention to the price trend of A-share listed companies. The recent correction of A-share market is an important reason for the poor performance of MSCI China Index compared with other emerging markets.