For Garner, the downgrade to equalweight from overweight for shares in the MSCI China Index was spurred by rising valuations and deteriorating earnings. The gauge's price-to-book ratio is now the highest since March 2012 and return on equity, a gauge of profitability, has shrunk to the lowest since the global recession six years ago, the Hong Kong-based strategist wrote in a report.

"China is no longer going to outperform other emerging markets," Garner said on Thursday. "We'd like to recommend taking some profits."

Chinese investors are borrowing record amounts to invest in equities. The outstanding balance of margin debt on the Shanghai exchange climbed to an all-time high of 1.24 trillion yuan ($200 billion) on Tuesday, while the number of Chinese stock accounts containing funds increased to a record 63.7 million in the week ended May 1.

Bulls say they are making the right call. The market can only be considered in a bubble if it doubles, and China remains attractive relative to other emerging and Asian markets based on valuations, Citigroup Inc analysts led by Markus Rosgen wrote in a note last month.

BNP's Kwong said he is now "a bit underweight" on China relative to the benchmarks he tracks. He recently sold some infrastructure and heavy machinery shares and shifted into insurers, which have lagged the rally, declining to name specific companies. The MSCI China Industrials Index surged 28 percent since March 27, compared with an average 16 percent rise by the nation's top three insurers.

Kwong has added shares from Southeast Asia, which have better prospects for a rally, he said. Still, there are pockets of China's market with attractive companies even if the overall outlook is not promising, he said.

"Even though we are skeptical about the market, the recent rally is something you must submit to," said Kwong. "When the market is going up and you're saying something rational, people wouldn't want to listen. But based on fundamentals, I need to remind people and be responsible."