Li Bei, Founder of Shanghai Banxia Investment Management Center, one of China's top macro hedge fund firms, has warned investors that the prospects of a "mid-to long-term reversal" means they should steer clear of investing in small cap stocks, according to a report by Bloomberg.

The report quotes Li as writing in a WeChat post that small caps are “are small, expensive, and trashy”, instead recommending funds pegged to the CSI 300 Index.

Small-caps plunged in January, with many quant funds then rushing to unwind positions triggering an even bigger sell-off, but have rebounded rapidly as state-backed funds have expanded their support to the sector.

Major benchmarks in China have now erased — or came close to wiping out — year-to-date losses thanks to a raft of support measures from the Beijing government.