The strategists at BofA Securities are warning that China's current stock market surge may soon experience a significant downturn, drawing parallels with the boom and bust cycle of 2015. Both the Hang Seng China Enterprises Index and the MSCI China Index have surged by more than 30% since mid-January, a rapid pace similar to the gains before the 2015 market crash. The strategists noted that the HSCEI index dropped nearly 50% between May 2015 and February the following year after reaching its peak, which it has yet to surpass.

There are notable similarities between the current economic cycle and that of a decade ago, with factors such as economic rebalancing and policy cycles at play, according to the strategists. However, they caution that a rally driven by multiple expansions could be at risk.

While Chinese markets have seen strong gains fueled by advancements in technology and China's economic ambitions, BofA's concerns contrast with the prevailing optimism in Chinese markets this year. According to the strategists, investors in Shanghai are growing anxious about stagnant job growth, deflation, and credit demand, with concerns arising over geopolitical tensions' impact. Additionally, some investors perceive potential bubbles forming in certain technology sectors.

Despite a brief dip, both the HSCEI index and the MSCI China index have maintained positive momentum, up over 23% for the year. In previous reports, BofA had suggested that the worst of devaluation and selling pressure for Chinese stocks had passed. They remain cautiously optimistic about the rally, aligning with investor sentiment, which has been lukewarm. The MSCI China index continued to rise following the strategists' latest reports.