There's a new feature that may be introduced shortly that may have a profound effect on mainland equities. I've argued before that Mainland Chinese equities represent a bubble, and that one day it must burst. One reason why it's lasted so long is that there are no instruments available for investors in the mainland to short equities. Thus people who think that the market is overvalued remove their money from the market, but can do little more. Investors who remain are by definition optimists, who believe that the market will continue to rise- otherwise they wouldn't invest in the first place!
In an economy where the number of new investors is growing at incredible rates (remember those reports about hundreds of thousands of new equity accounts being opened every day?), there's no stortage of optimism.
But now that pie cart may be about to be overturned. From today's South China Morning Post:
"The imminent launch of index futures in the mainland is increasingly spooking investors who fear it could herald a sharp correction in a market that has almost doubled this year."
"The mainland's stock benchmarks slipped for a fourth day yesterday as investors braced for the introduction of a system that will allow big funds to bet on a market decline. The losses contrasted with a rebound in the Hong Kong market."
So mainland investors may be able to short mainland equities soon, and that's enough for the market to drop? Chalk that up to additional evidence of a bubble...