The benchmark Shanghai Composite tumbled 7.4 percent on Friday, racking up a 6.4 percent weekly loss. This follows a 13 percent plunge last week – its worst weekly decline since 2008.
The index, however, remains up 30 percent year-to-date – putting it in the ranks of the best performing markets globally.
Addressing the disconnect between China's soft macro-economic backdrop and its sizzling stock market, Roach says it all boils down to liquidity.
Over the past six months, the People's Bank of China (PBOC) has been easing its policy stance to maintain adequate interbank liquidity. In April, it lowered the reserve requirement ratio (RRR) for banks by 100 basis points to 18.5 percent - the deepest single reduction since the depth of the global crisis in 2008, according to Reuters.
"The U.S., for example, is in the midst of the worst recovery in its post-World War II history. Yet the stock market is up three times from its trough in 2009," he said. "These are liquidity driven markets and investors believe that central banks are just going to be there and keep pouring punch in the punchbowl."
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Experts remain divided over how to trade the notoriously volatile mainland markets. Morgan Stanley on Friday advised investors against buying the dip in the market, noting that it has likely already seen its peak in the current cycle.
The bank set a mid-2016 target price range for the Shanghai Composite at 3,250-4,600 – representing anywhere from a 22 percent slide – in a worst case scenario - to a 10 percent rise – in a best case scenario - from current levels. The index ended at 4,193 on Friday.
"Our stance on China A-shares is that this is probably not a dip to buy. In fact, we think the balance of probabilities is that the top for the cycle on Shanghai, Shenzhen and Chinext has now taken place," Morgan Stanley wrote in a report on Friday.
Roach was less sanguine on the outlook for Japan equities, despite the Nikkei 225 index rising to its highest level in more than 18 years earlier this week. When asked about the possibility of the index climbing back to its 1989 peak of around 40,000, he said: "Forget it, that's pure fantasy."
"It's been 25 years of lost decade-like growth in Japan. The last thing Japan needs is to go back to a bubble mindset which created the monster in the first place," he said.
Roach says the jury is still out over whether Abenomics, or Prime Minister Shinzo Abe's plan to kickstart the long moribund economy, will be successful.
"There are reasons for encouragement on some ground but it's really early in the game to conclude that it is a successful campaign especially in light of political resistance to the structural changes in the third arrow," he said.