Is China incubating an earnings bubble alongside its better-documented valuation bubble? In the recently completed third quarter, earnings a share for domestic “A” share listed companies, excluding insurers, rose 59 per cent from a year ago.

Several risks attach to these numbers. First, a big chunk of earnings relates to investment gains as companies – like everyone else – cash in on the rising “A” share market. Analysts believe up to a third of earnings could come from punting shares, although quantifying this is tricky. Morgan Stanley, stripping out investment and non-operational income, calculates that core earnings a share growth falls back to 35 per cent. The composite “A” share market is already down 12 per cent since the end of the third quarter. According to Morgan Stanley, a 10 per cent drop implies an investment loss that would trim annualised growth by 10 per cent. That may be overstating the case. Investment income such as property disposals would be unaffected; besides, plenty of gains/losses are unrealised. But a falling stock market will clearly clip earnings growth.