Investors can take some comfort in the 10 per cent fall in the Shanghai Composite Index (SCI) over the past week. Yes, the gloom appears to have sparked fear in markets elsewhere. But if, as seems likely, the slump has been prompted by the spectre of Chinese price controls – where companies are forced not to raise prices, or to run certain operations at a loss in the national interest – that is more encouraging. It suggests that the index, which has historically borne a close relationship to domestic liquidity, may be becoming a better reflection of the market’s best estimate of earnings growth prospects.

There is other evidence of a maturing market. Consider the A/H spread – or the price of H-shares in Hong Kong, relative to their equivalent A-shares in Shanghai. From 2006 to 2009, mainland stocks traded at an average premium of 31 per cent to the more liberal offshore market. Since the beginning of this year, though, the average gap has narrowed to 6 per cent; since July it has fluctuated between a premium and a discount. By the same token, it is worth noting that the SCI is sagging even as retail interest has surged: last week’s new A-share stock account openings were the highest since August 2009. The correlation between the growth in new accounts and the index itself has noticeably weakened this year.

Shanghai trading cannot yet be considered a rational mechanism for pricing shares. The total allocation to foreign institutions is a miserly $19bn, less than 1 per cent of the SCI’s capitalisation. Valuations still suggest a preponderance of investors chasing momentum over value: every third stock on the SCI has a trailing price/earnings ratio above 50, compared to one in 21 on the S&P 500. But little by little, Shanghai is getting there.