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Shenzhen stocks next 'short of a lifetime': Bill Gross
China's red-hot Shenzhen stocks are the next "short of a lifetime", closely watched investor Bill Gross announced late Wednesday, however many strategists beg to differ.
"German Bund 'short-of-a-lifetime' update: it's happening. Up next: China Shenzhen index. Not just yet ..." Gross - the co-founder of PIMCO who now oversees the $1.5 billion Janus Global Unconstrained Bond Fund - tweeted out via Janus Capital's official account late Wednesday.
His tweet drew swift reaction from market watchers in the region, who mostly disagreed with his call.
"[Gross] is not right," Hao Hong, chief strategist at Bank of Communications International in Hong Kong told CNBC on Thursday. "The Chinese market has gone up substantially this year but just because it's risen too high, too fast doesn't mean it has to crash down."
The Shenzhen Composite - which tracks shares on the smaller of China's two exchanges - has rallied a staggering 108 percent so far this year, dwarfing gains on the Shanghai Composite, which has risen 49 percent over the same period.
The market is mostly made up of younger, privately-owned enterprises, compared with its Shanghai counterpart, which is dominated by large state-owned companies.
The rapid gains have been driven by the famously momentum-driven retail investors, which account for around 80 percent of China's stock-trading volume.
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Hong argues the liquidity environment remains "very supportive" towards further gains on the index.
"The central bank has done quite a bit to boost macro liquidity," he said. "Even though we're bound to have some corrections down the road because there's a lot of leverage in place, at the same time it's too early to say that the rising trend is finished here," he added.
Uwe Parpart, managing director and head of research at Reorient Financial Markets, who recently paid a visit to the Shenzhen Stock Exchange, doesn't see any bubbles brewing in the market.
"We went over to pay a visit to the stock exchange a few days ago. If you take a look at what these companies are, a lot of them are well founded, doing a good job" he said.
The Hong Kong-Shenzhen stock connect, which is in the offing, together with the raft of initial public offerings (IPOs) scheduled for the second half should provide fresh momentum for the market, he added.
Valuations: fair or frothy?
To be sure, valuations remain a concern for some investors. The Shenzhen Composite is trading at price-to-earnings (PE) ratio of 62, almost triple that of the Shanghai Composite.
"The Shenzhen market is exceptionally expensive. It's hard not to look at valuations of 30, 40, 50 times earnings and not think there's a bubble playing out there," Charles Blankley, chief investment officer at Gemmer Asset Management, told CNBC.
He does warn against shorting the market in the near term.
"What worries us about putting a short on at this point is we think policy is going to continue to be supportive for the Chinese equity market, so while over the longer term it may make a lot of sense, short-term say 3-6 months it could be a tough trade," he said.
But not everyone agrees the valuations are at worrying levels. "Of course there are some individual outfits whose valuations are stretched but that's not true for the market in its entirety. I don't see any particularly horrific development on the horizon," Parpart said.
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