Credit Suisse: China stocks nearly a quarter overvalued - Is it a bubble? 'Chinese equity market should therefore be closely monitored this summer'

China shares are in a bubble 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. Moreover, equity market price momentum has decoupled away from earnings revisions which remain deeply embedded in negative territory."

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.

Is it a bubble?

"The evidence for is largely participation and technicals related. The evidence against is principally valuation related."

"Looking at the market cap to GDP (gross domestic product) ratio as a measure of risk in equity markets, it now seems to us that the recent sharp rise in the Chinese market is the first sign of a bubble without the support of fundamentals."

"The Chinese equity market should therefore be closely monitored this summer".