Daryl Guppy, the Australian trader and analyst, says that despite recent heavy falls the sky is the limit for the Shanghai Composite Index.
The 55-year-old investment guru told China Daily he expects the index to resume its long-term growth path once current volatility is over. The index plunged to a three-month low of 2,639 last Tuesday but has risen from 1,664 last October. It hit levels of over 6,000 towards the end of 2007.
"The upside of the market is unlimited but that is not to say it will be 7,000, 8,000 or 9,000. What is important is the nature of the trend and we can see from a technical perspective a consistent long-term trend emerging," he says.
Guppy, who is founder and director of Guppytraders.com, a resource for traders across the world, says current high daily trading volumes - regularly exceeding 300 billion yuan in Shanghai and Shenzhen - give the market solid support.
"The large trading volumes provide liquidity as well as volatility. When markets have low trading volumes it is difficult to buy and sell. The more people investing in the market creates a stable trend," he says.
Guppy says the Shanghai market, which is still not open to foreign investors, will emerge as one of the world's strongest.
"There is a shift in financial power from the West to China. What is happening in the Shanghai market is influencing what is happening in European, Asian and American markets," he says.
The Australian, who has been compared with other investment gurus such as Warren Buffet and George Soros, believes what is happening in China is similar to the United States at the beginning of the 20th Century.
"At the time the Dow Jones index was trading at 900 and people said it would never reach 1,000. Fifty years later it was trading at 9,000 and people said it would never reach 10,000. So we can never anticipate how large the market will develop," he says.