Crackdown on graft encourages bullish sentiment

The Shanghai index trades at 8.2 times projected 12-month earnings, compared with the five-year average of 11.3, and the current multiple of 11 times for the MSCI Emerging Markets Index, according to data compiled by Bloomberg.

"I am quite optimistic," Cheah said. "The market has bottomed out. We're beginning to see the beginning of a recovery in June and July. The strong performance may only be the beginning."

Restoring trust in the equities market is crucial before the planned start of a link between the Hong Kong and Shanghai stock exchanges that will make it easier for international investors to buy mainland shares, Cheah said.

The Hong Kong-Shanghai Connect is "very important" because it will narrow the valuation differential between dual-listed equities and its success would presage the possible inclusion of the mainland's local-listed A shares in global indexes, he said.

Cheah is joining bulls from Templeton Emerging Markets Group to JP Morgan Chase & Co. Chinese mainland stocks will rise an additional 20 percent, Mark Mobius, whose $13 billion Templeton Asian Growth Fund has outperformed more than 90 percent of peers this year, said in July.

Adrian Mowat, the chief emerging-market strategist at JP Morgan, last week raised his rating on Chinese mainland stocks to neutral from underweight, predicting gains through October.

DeMark, who predicted the Shanghai Composite's peak last year, says its current rally is poised to end. The gauge will probably fall below this year's intraday low of 1,974.38 in about six months.

Investors hesitate before stock link	Top 10 underwriters in China