Whether China shares are in a bubble depends on which data bit catches the fancy, but the market has outstripped its fundamentals and is 23 percent overbought, Credit Suisse said.
"Margins, profitability and value creation continue declining as productivity growth lags real wage growth and product selling prices are eroded," Credit Suisse said in a note Friday.
"Moreover, equity market price momentum has decoupled away from earnings revisions which remain deeply embedded in negative territory."
Its models indicate the market is 23 percent overbought and has potential downside of 15 percent in U.S. dollar terms by year-end.
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The mainland's shares have rallied sharply this year, despite a brief drop into correction territory last week. The Shanghai Composite is up around 50 percent year-to-date, even after last week's one-day 6.5 percent plunge. The Shenzhen Composite is up around 111 percent year-to-date.
Credit Suisse attributes the rally to factors including the People's Bank of China injecting liquidity through its easing measures, retail investors re-allocating assets to stocks and away from bank savings, wealth management products and property. Apart from some restrictions on margin trading, the securities regulator also appears to be letting the rally ride, the bank noted.