The world's stock markets are so hot that even China's on a rally. Analysts say it's not over yet.

Big names, including "Big Short" investor Michael Burry and David Tepper's Appaloosa Management, have been piling into the Chinese stock markets.

• Global stock markets are hitting record highs, driven by economic optimism and potential rate cuts.
• China's stock markets are rallying on attractive valuations and government stimulus measures.
• Investors are shifting funds to China as they seek profits from rising valuations in other markets.

The world's major stock markets are on a tear as indexes near and breach record highs.

The market is so hot that some analysts are even asking investors to rethink the adage "sell in May and go away" this year.

After all, 14 of the world's 20 largest stock markets have hit all-time highs recently, according to Bloomberg's count on Saturday.

The US's three major indices were at record levels, with the Dow Jones Industrial Average closing above 40,000 for the first time on Friday. Stock markets elsewhere, including in Europe, India, and Japan, are also near or at their all-time highs.

Broadly, the MSCI ACWI Investable Market Index, which tracks large and mid-cap companies across developed and emerging markets, set a record high on Friday.

The markets are so hot that even China's stock markets — which entered 2024 in meltdown mode — are booming, too.

The CSI300, which tracks 300 large and midsize stocks in the Shanghai and Shenzhen markets, is up 7.4% this year to date. Meanwhile, Hong Kong's Hang Seng Index has surged 15% so far this year.

Cheap valuations in China are attracting hot money

In general, global stocks are driven by fundamental factors such as generally rosy economies, positive corporate earnings, and potential interest rate cuts, which send money back into stocks from bonds.

However, China's market rally appears to be fueled by attractive valuations after prices tanked so much over the last few years.

While there is risk in China's equity markets given their sustained slump, it appears that some investors think that it's worth the gamble — particularly since stocks elsewhere are getting expensive after an extended rally.

Chinese stocks' valuations are now broadly in line with their average before the pandemic, wrote Andrea Cicione, the head of investment researcher GlobalData TS Lombard, in a Friday note.

In particular, investors are rebalancing their portfolios from India to China as they take profit from gains in the hot South Asian market. India's benchmark Sensex and Nifty 50 indexes have both surged about 20% in the past 12 months.

As a sign of shifting global fund flow, big names have been piling into the Chinese stock markets. They include "Big Short" investor Michael Burry and billionaire investor David Tepper's Appaloosa Management.

Billionaire investor Ray Dalio said in March that he was still investing in China thanks to cheap stocks.

China's market rally may have more room to run

It helps that the Chinese government has stepped up economic stimulus measures. On Friday, the government pulled out its strongest moves to address its property market crisis. The top-down measures are a "clear sign" that Beijing still places a high priority on stabilizing China's embattled housing market, wrote Bank of America analysts in a Monday note.

However, Cicione, of GlobalData TS Lombard, warned that the stimulus was put in place precisely because there is "economic pain," as China's April economic indicators showed.

"We expect a soft patch in activity ahead before new measures aimed at boosting the economy start having an effect," Cicione said. "China equities should continue to benefit from improving consumer confidence and an export recovery driven by incremental monetary, fiscal, and property stimulus."

He said that investors' return to China's stock market has gained momentum and "likely has further to run."

Earlier this month, LPL Financial strategist Adam Turnquist also said China's stock market bull run may continue.