China's stock-market boom is unlikely to stall yet as rising corporate earnings and low returns on bank deposits encourage investors to put more of their savings in to equities, according to Christopher Wood, global equity strategist at CLSA Ltd.

"China's A shares are likely to head inevitably, unless there's some big external shock globally, into full-scale mania," said Wood, who is the No. 2 ranked Asian strategist according to Institutional Investor. Stock valuations may reach "70 to 80 times" profit before the rally ends, he said Tuesday at a conference in Shanghai hosted by CLSA, the Asian securities arm of France's Credit Agricole SA.

China's benchmark CSI 300 Index, which tracks yuan- denominated A shares listed on China's two exchanges, is valued at 41 times reported earnings, according to data compiled by Bloomberg. The benchmark has surged 78 percent this year, after more than doubling in 2006.

Wood, who is based in Hong Kong, said the A shares could mirror Taiwan's stock market in the late 1980s. The island's Taiex Index jumped more than 10 times from the start of 1987 to a record 12,495.34 in February 1990. The measure last month closed above 8000 for the first time in six years.

The Shanghai Composite Index, which tracks shares on the larger of Chinese mainland's two stocks exchanges, has quadrupled since a five-year slump ended in July 2005. It reached a record 4049.70 on May 10, up from 1011.50 at the start of the rally.

Earnings Growth

China's stock market surge is "not entirely speculative" as domestically listed companies' earnings rose 34 percent in 2006, Marshall Gittler, chief Asian strategist at Deutsche Bank Private Wealth Management, said Tuesday in a research note. About 60 percent of the companies reported profit increases in the first three months of this year, he wrote.

"One good thing we cannot deny is that earnings growth in the A-share market is very strong," Vincent Chan, Beijing-based head of China region research at Credit Suisse Group, said in an interview Tuesday. First-quarter earnings for A-share listed companies rose 95 percent from a year earlier, he said.

China's share rally is also driven by low bank deposit rates, which after accounting for inflation, makes it "natural for people to put money in the stock market," said CLSA's Wood. This could prompt the government to threaten to tax stock market gains, he said.

Deposit Rates

Inflation in China held above the benchmark deposit rate for a third month in April. Consumer prices gained 3 percent in April from a year earlier, the National Bureau of Statistics said May 14. That's higher than the maximum deposit rate of 2.79 percent that banks are allowed to offer.

"There's still room for more money to move out of bank deposits and into the equity market," said Erwin Sanft, head of China and Hong Kong research at BNP Paribas Securities (Asia) Ltd. in Hong Kong, in an interview yesterday.

"The A share market can still double from here, whether it happens this year, or whether it happens next year."