BEIJING (Reuters) - The chairman of China's securities regulator told Chinese stock investors on Thursday to stay "rational and calm", saying he especially needed to remind new investors of their inexperience when it came to handling market volatility.
The warning comes as China's massive stock market rally - much of it driven by margin finance and other forms of leverage - spills into Hong Kong and other markets.
The rally is one of the few bright points in an otherwise gloomy economic picture but it has raised concerns that the surge, which has relied mostly on an army of individual retail investors, could come quickly unhinged, resulting in a repeat of the debilitating crashes that occurred in 2008 and 2009.
Xiao Gang, who leads the China Securities Regulatory Commission (CSRC), said investors must not think they are missing the boat if they have not invested in the Chinese stock market, which has surged around 70 percent since November.
"We remind investors, especially those new to the market, to be rational and calm when investing in stocks," he said in a speech posted on the CSRC website.
"Investors should fully assess market risk, make investments prudently, know their own capabilities and limits, and avoid blindly following the crowds."
The number of new investors is significant. Most Chinese have historically remained wary of stocks, preferring to put money in real estate given its superior rates of return. But housing prices have slumped even as the Shanghai Composite Index has gained more than 70 percent since November.
That has caused the number of active stock accounts in China to swell to 111 million, up from around 95 million a year ago.
"What Xiao means is: investors need to be responsible for their own investment decisions and take risks. It's a very natural caution because you don't expect regulators to say, at the current index level 'please continue to buy stocks.'" said David Dai, Shanghai-based investment director at Nanhai Fund Management Co Ltd.
"The days of making money with closed eyes are over."
Beijing is keen to manage market sentiment, especially since the rally appears disconnected from any economic fundamentals.
On Thursday, China stocks advanced to 7-year highs with sentiment staying upbeat despite the regulator's warnings and Premier Li Keqiang's remarks that China would have difficulty meeting its 7 percent growth target this year.
The economy grew at its slowest pace in six years in the first quarter and weakness in key sectors suggest the world's second-largest economy is still losing momentum.
(Reporting by Koh Gui Qing in BEIJING and Samuel Shen, Pete Sweeney and Adam Jourdan in SHANGHAI; Editing by Jacqueline Wong and Alan Raybould)
