The Shanghai Stock Exchange Composite Index hit 2329 in afternoon trade on Thursday, extending an impressive rally that has pushed the measure up close to 15 per cent in less than two months.

The Shanghai Stock Exchange Composite Index joined equity markets around the world and collapsed in the wake of the global financial crisis.

But while most major markets have managed to totally or partially recoup those losses, the Chinese benchmark has largely flatlined. To this day it remains a full 60 per cent below its peak in 2007.

And the few investors who have had access to mainland China shares are no strangers to volatility and false dawns.

The benchmark index surged 24 per cent over the two months on either side of the 2013 New Year, only to give up all its gains by the middle of that year.

Short rally

No great surprise, them, when Bank of America's China strategist, David Cui, said in a speech in Tokyo that he believes China' stock surge will soon evaporate.

"This rally will probably last for another couple of weeks," Bloomberg reported Cui, who has been mostly bearish on Chinese stocks since May 2010, as saying. "Investors think there will be a lot of international money flowing into the domestic A-share market, and I don't think the flow will be that big. If I were an investor, I would get out of the market before that."

That influx of cash is due to the expected implementation next month of the Chinese government's "stock connect" program, which will allow international investors to trade previously restricted mainland-listed "A shares" via the Hong Kong bourse and give mainland investors access to the Hong Kong-listed H shares of Chinese companies through the Shanghai stock exchange.

The program was announced in April with a six-month implementation timeframe. With a number of companies dual listed on the Hong Kong and mainland exchanges, canny investors were quick to take advantage of arbitrage opportunities.

But shareholders are also bidding share prices higher on the expectation that there will be a big and continuing influx of new capital into the freshly deregulated equity market, says Michael Chiu, an investment director for Chinese equities at HSBC Global Asset Management – a rising tide that will lift all boats.

"In the past it was very difficult for global investors to invest in the China A-share market, but those dynamics will change," Chiu says.

"You will be able to buy and settle on the Hong Kong stock exchange but the underlying stocks will be Shanghai stocks, and maybe in the future those in Shenzhen."

Efficiency push

And while the increasing liberalisation of the Chinese equity markets will support share prices in the coming three to six months, a push by authorities to increase efficiency among state-owned enterprises (SOEs), which account for 70 per cent of the benchmark Shangai index market capitalisation, will generate longer term dividends.

"Private Chinese companies over the past 10 years have had stable returns on equity of around 12 to 14 per cent," says Chiu. But the return on equity (ROE) of the listed market as a whole has been two or three percentage points below that, which Chiu puts down to the poor efficiency of the SOEs.

But that trend may be about to change.

"Since November, authorities have been asking SEOs to reform and to de-leverage."

"They need to sell down some of their assets and increase their efficiency on the operational side."

To achieve that, the SEOs have been encouraged into joint ventures with the private sector.

Take Chinese gas stations, Chiu says, where 99 per cent of sales come from sales of petrol. That figure compares to less than 60 per cent among their US equivalents, which profit heavily from selling a wide range of products from attached convenience stores.

Public-private joint ventures have been created to drive change in the industry – potentially boosting margins, profits, and shareholder returns; a story Chiu believes can be replicated across the economy.

Those willing to put their money in the Chinese equity market may have myriad worries, but investors can at least be take comfort that the Fed isn't one of them.

"Chinese investors don't even worry about the Fed," Chiu laughs.