Chinese bourses, long in doldrums, have shown signs of revival and are likely to extend their current winning streak

Stock markets are often considered to be synonymous with economic growth. But China has been an exception to this rule and is perhaps one of the few regions where one can find stock markets operating in splendid isolation, or in other words, not in tandem with economic growth.

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So when reports of foreign institutional investors rebuilding their mainland stock portfolios first started doing the rounds in Hong Kong during November, they were treated with skepticism by most capital market experts. The doubts seemed justified as the markets were still bearish and there were no triggers for the bulls to return.

However, the initial disbelief soon gave way to renewed optimism as share prices firmed up sharply in the last two months and heralded the return of the bulls.

The benchmark Shanghai Composite Index exceeded the 2400 level for the first time in nine months after rising for five consecutive days in early February. The index has risen about 23 percent from early December, when it was at a four-year low of 1949 points.

Even more encouraging were the reports that trading volumes on the last Wednesday of December alone had reached 135.6 billion yuan ($21.74 billion; 16.3 billion euros), almost four times the daily turnover in late November.

Sentiments improved further when robust macro economic data dispelled the fears of an economic hard landing. The preliminary HSBC China Manufacturing Purchasing Managers Index, a gauge of the country's manufacturing activity, rose to 51.9 in January from 51.5 in December, a 24-month high.

The impetus for the stock market rally came after the elusive small, individual investors started returning to the bourses. Bargain hunters were back in business and so were new entrants eager to grab a slice of the pie.

According to data provided by the China Securities Depository and Clearing Corp, as many as 117,600 new accounts were opened between Jan 14 and Jan 18. More than 12.6 million accounts were active in trading during the same period, a 13.4 percent rise on the previous week.

Even as news of the market rally was still sinking in, came reports that more than 800 companies were lining up to raise funds from the capital market through initial public offerings, secondary offerings and bond issues.

A healthy stock market was not only big news for the army of demoralized investors but also a boon to the many cash strapped enterprises, considering easy credit to be a thing of the past.

Despite the improved economic fundamentals, many experts feel that the Chinese capital markets are still not ready for a massive revaluation. They contend that the latest earnings announcements have shown little improvement in overall corporate earnings potential.

The average stock market price to earnings ratio, or PE, has already adjusted upward to more than 12 times from about 10 times in the past few weeks. Further readjustment will depend on the projected performance of the major publicly traded enterprises in the key economic sectors, including property, finance, energy and telecommunications.

And that, many analysts says, is a big if.