Fundsmith's Michael O’Brien worries there are "increasing signs of a bubble in Chinese equities", amid ETF inflows and government support for an equity bull market.
After a sharp Covid-19 fall in Chinese equities, some Chinese stockmarkets have rallied by between a quarter and a third as the country has begun to emerge from the pandemic and its economy recovers.
Some fund managers focused on the region see signs the rally could continue, but O'Brien, who manages the £289m Fundsmith Emerging Equities Trust (FEET) is less sanguine.
In FEET's recent half-year report, the manager noted some worries in the emerging market sphere, including strong market performance in April and June - the only two months during which FEET underperformed its MSCI Emerging Markets benchmark - seemingly led by ETF flows into the asset class.
"We also note that Alibaba and Tencent, two of the largest stocks in the index, rose over the course of H1, helping to confirm our suspicions that ETF flows have not gone away," O'Brien added.
O'Brien's second worry was that "there are increasing signs of a bubble in Chinese equities, particularly in sectors such as technology where China is trying to displace foreign suppliers".
He pointed to the recent article in the state-sponsored China Securities Journal that investors should expect a "healthy bull market" as a reason for the run up in share prices.
"The Chinese government has encouraged equity bull markets after periods of economic weakness before," O'Brien continued.
"Now, state-sponsored journals in the mainland are calling for the ‘fostering of a healthy bull market', helped of course by the direction of cash from state funds, corporate backed wealth management products (which are typically opaque) and private investors.
"As you are well aware, we don't chase indices but instead focus on owning a number of high-quality companies found in a limited range of sectors. This is something which will not change regardless of the level of momentum in the market."
That said, O'Brien admitted FEET had initiated a position in Tencent, the social networking, gaming and music streaming firm, during the Covid-19 sell-off earlier in 2020. O'Brien pointed to WeChat, the company's social media platform, which has more than 12 billion users, alongside its QQ messaging service, which has 600 million.
"Around the WeChat infrastructure are a number of other services such as payments, utilities, gaming, information and news," he explained.
"98% of Chinese internet users access the internet through smartphones, clearly supporting Tencent's business model which has focused on building a large user base with relatively low transaction values and a high proportion of revenues derived from subscriptions. Foreign entrants into the market are highly restricted by Chinese law."
Elsewhere, the trust added two Brazilian companies to its portfolio on the back of share price weakness, in online investment platform XP Inc and fashion retailer Lojas Renner.
The former, said O'Brien, is the largest provider of products, including equities, fixed income and mutual funds, for retail investors in the country with a 4.5% share of what is a $2.1trn market. The firm has 1.5 million clients, equivalent to 0.6% of the population.