Chinese stocks may be overhyped by investors.

• Shehzad Qazi, managing director of China Beige Book International, stated that global investors might be acting too soon, as everything is still too early.
• The Securities and Exchange Commission in the United States has been scrutinizing Chinese firms that may face delisting if they fail to meet audit standards.
• Recently, China has shown support for U.S.-listed Chinese stocks, resulting in a surge in share prices.

Despite indications that U.S.-listed Chinese stocks may face less risk of delisting, some analysts remain cautious and uncertain about their future.

Shehzad Qazi, managing director of China Beige Book International, stated that global investors might be acting a bit prematurely, as everything is still in its early stages.

Beijing's support for its overseas-listed firms caused Chinese stocks to experience significant fluctuations in March.

The MSCI China index surged almost 24% in the second half of the month, reversing a 25% decline in the first half. This index covers all Chinese stocks listed in Hong Kong, the mainland, and the U.S. Its top constituents are mainly tech stocks. Additionally, the S&P 500 China ETF has increased approximately 25% between mid-March and April 1.

Qazi stated on CNBC's "Squawk Box Asia" Monday that he believes many investors are content with the current progress, but they are not fully concentrating on the uncertainty and unknowns that exist.

Harvey Pitt, former chairman of the U.S. Securities and Exchange Commission from 2001 to 2003, stated: "The Chinese government's effort to appear more transparent is a clear attempt to create an illusion. The true challenge will lie in the specifics."

Pitt, CEO of consulting firm Kalorama Partners, posed the question: "Will those investing in Chinese companies do so with their eyes wide open?"

In March, the U.S. Securities and Exchange Commission put pressure on shares of Chinese companies, specifically tech giant, biopharmaceutical firm, and fast food restaurant business, by identifying them as potential candidates for delisting if they failed to comply with audit requirements.

On Friday, Chinese stocks listed in New York surged following news that China may permit U.S. auditors to access company audits. This would enable the companies to maintain trading in the U.S. The China Securities Regulatory Commission informed CNBC that it instructed some accounting firms to prepare for joint inspections.

Beijing proposed revising confidentiality rules for offshore listings over the weekend, which could facilitate cooperation between the two countries on audits, according to Reuters.

According to Qazi, recent rule changes in China suggest a positive step forward, but the specifics of which companies the SEC will be able to audit according to U.S. rules and regulations remain uncertain.

If Baidu, Alibaba, and Tencent do not allow U.S. regulators to audit their books, they will lose a significant amount of market capitalization, according to the speaker.

Too early to call it a ‘dragon market run’

Other analysts also urged investors to stay cautious.

To sustain the market rally in China, a concrete policy action is likely needed. The zero-COVID policy and activity restrictions will negatively impact consumption and sentiment in the near-term, while the relationship with Russia increases the threat of U.S. sanctions on markets, as stated by Seema Shah, chief strategist at Principal Global Investors, in a note last week.

Over 30 stocks, including Chinese developers Sunac China, Shimao, and Kaisa, were suspended from trading on the Hong Kong exchange due to late earnings reports, contributing to China's property debt crisis.

Despite China appearing to adopt a more market-oriented approach, it is premature to label this as a new "dragon market run," according to Shah.

Capital Economics researcher Kieran Tompkins stated that the near-term growth outlook is deteriorating due to high oil prices, renewed lockdowns, and other factors that may negatively impact earnings growth.

Even if domestic policymaking is less of a concern for investors, the war in Ukraine and China's alliance with Russia have sparked fears that the invasion will speed up the process of decoupling the country's financial system from the US, the assistant economist stated in an April 1 note.

Although China's stock market valuation is lower than other MSCI equity indices, we believe it will still face pressure, the expert stated.