Exploring China's stockmarkets in charts. CHINA'S stockmarket has often been called a casino, with share prices bearing little connection to underlying economic conditions.

But while the market has strayed from growth trends in the past, its divergence over the past few months has reached new extremes. A shift to monetary easing and fiscal stimulus—and expectations of more of both—help explain why the rally began.

But the longer it has continued, the more it has looked like a classic case of irrational exuberance. Here, we offer a look at the mania in charts. Is the Chinese stockmarket in bubble territory?

That depends on what part of it one focuses on. Large-cap stocks, long depressed, are arguably more fairly priced after the rally of the past year. Many banks are still trading at valuations lower than international peers. The same cannot be said for ChiNext, a board for start-ups, especially tech firms.

Its price-to-earnings ratio has reached , more than twice a more reasonable level for companies with strong growth stories. At the moment it looks like precisely that in , just before the dotcom bubble spectacularly burst.

Another measure of the stock mania in China is the gap that has opened between share prices in the mainland and Hong Kong. A new programme to link the markets was supposed to prevent such gaps, allowing investors to arbitrage the price differences. But "southbound" flows to Hong Kong have failed to take advantage of the lower prices there. Instead, investors believe that there is still more money to be made riding the mainland rally.

The best indicator of just how much money has entered the stockmarket is the surge in openings of new trading accounts over the past year.

Stock Market Glorified Casino

Almost 8m accounts were opened in the first quarter of In April regulators allowed individuals to open up as many as 20 accounts previously, they were restricted to one , a rule change that makes it easier for day traders. Since then, investors have opened about 4m accounts per week. Who exactly are these investors?

That is true, up to a point: But many of the new investors in the Chinese market over the past year appear to be quite wealthy. Partly, that is because the rally has inflated account values, but they have also swelled as a result of new cash inflows.

What are the risks for the Chinese economy if the bubble pops? One saving grace is that the stockmarket is still a much smaller part of the economy compared with those in wealthier countries.

This suggests that the immediate fallout from a crash would be more limited. But a healthy economy needs a healthy stockmarket. Media Audio edition Economist Films Economist Radio The Economist apps.

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Is the Stock Market Just a Glorified Casino? - My Thoughts on Various Topics - Nathan Wailes

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