China shares may be seeing a flood of bullish calls after years of under-performance, but some analysts remain solidly pessimistic on the market.
"People have been ignoring a lot of risks out of China," David Cui, head of China equity strategy at Bank of America-Merrill Lynch, told CNBC Tuesday. "Look at what's happening in the property market, look at how fast bad debts have been showing up throughout the financial system."
He expects the HSCEI index of H-shares, already down around 2.5 percent so far this year, to fall further to 9600 by year-end from around 10,532 currently.
China's debt levels have been a major concern for investors for years, spurring fears that increasing borrowing is fueling a dangerous property bubble and overcapacity in many industries.
House prices on the mainland increased at double-digit rates throughout most of 2013, but began cooling toward year-end as government tightening measures started to take effect. That fed concerns a too-sharp slowdown could hurt overall economic growth as the property sector reportedly accounts for as much as 20 percent of gross domestic product (GDP).
Last week, little known Huatong Road & Bridge Group Co. warned it wouldn't be able to pay down its debt, likely marking the first time a Chinese company has openly defaulted on both principal and interest for a bond.
"There will an avalanche of defaults coming up in the system. This is only the beginning," Cui said. "The key issue for us is the excessive capacity in the system and overleverage. So when you combine these two factors, it makes the defaults almost inevitable."