Templeton Emerging Markets Group boss Mark Mobius has forecast a 20% retreat for Chinese equities, which he said have risen too fast.
Mobius expects the bull market in Chinese stocks to remain "intact" in the long run.
He said the ultimate inclusion of Chinese shares in the MSCI global benchmarks, alongside the nation's capital-market liberalisation, will motivate the market to climb further in the long run.
Margin debt spikes
But Mobius is turning cautious in the short-term, after market players opened a record number of new stock accounts and bought stocks on margin, pushing margin debt to historic highs.
In margin trading, investors borrow money from brokerages to buy more stocks. Loans are secured by investors' equity holdings
China is the biggest weighting in Mobius's Asian funds, followed by India and Thailand.
And Chinese investors opened a record 1.7 million accounts to trade equities in the week to 27 March 2015, and there is now over CN¥1tn (£108bn, €148bn, $161bn) of borrowed cash riding on the stock market, Bloomberg reported.
Mobius, who manages some $40bn worth of assets, said a 20% retreat for Chinese stocks was "very possible".
Mobius, speaking in Hong Kong on 8 April, said: "The bull market is still intact. It can go for five years to 10 years."
But "too much credit is not a good thing in the long run. When the market turns, it could be a problem."
The benchmark Shanghai Composite share average has gained some 94% over the past one year.
Mobius predicted a long-term bull run in China in December 2014.