The Shanghai Composite has risen 16.5% in eight straight sessions of gains.
Photo: str/Agence France-Presse/Getty ImagesChinese state media urged investors to think long term, and authorities highlighted hundreds of operations making illegal loans against shares, showing that Beijing is eager to avoid stocks overshooting.
Mainland stocks have surged to multiyear highs in recent days, with the Shanghai Composite rising 16.5% in eight straight sessions of gains through Thursday. Those increases were partly fueled by optimism among China’s millions of individual investors, who dominate trading.
In another sign of exuberance, shares in a newly listed company, QuantumCTek Co. Ltd., surged roughly 10-fold on their first day of trading in Shanghai on Thursday, giving it a $4.2 billion market value. The Chinese yuan strengthened to trade below 7 to the dollar.
A front-page editorial Monday in the state-owned China Securities Journal about a “healthy bull market” was viewed as an official endorsement, in a market where investors often take their cues from government action and statements. But on Thursday, the same newspaper urged investors to manage risks, respect the market, and to invest rationally and for the long term.
“The painful lessons of the abnormal stock market volatility in 2015 are still vivid in our minds, warning us that we must promote a healthy and prosperous stock market in a proper manner,” it said.
Starting in 2014, the Chinese market more than doubled in less than a year, as individual investors borrowed to bet on stocks, with official encouragement. A crash in mid-2015 wiped out most of those gains in slightly more than two months.
In another sign of caution, the securities regulator late Wednesday listed 258 illegal margin-lending platforms and their operators. These lenders worked through websites, apps, and via the social-media service WeChat, with some offering to lend investors up to 10 times their capital, it said.
Zhang Gang, a strategist at Central China Securities in Shanghai, said authorities wanted China’s capital markets to grow stronger and bigger, but preferred the growth to be slow and steady to stimulate consumption and help the economy transform.
Mr. Zhang said extra funds in the financial system, introduced partly by easier monetary policy, had nowhere to go but stocks. “It can’t go to the housing market. The wealth-management market’s yield is low,” he said.
Wang Jian, a 37-year-old project manager at a games company in Shanghai, said there were no better investment opportunities than stocks at the moment. He said the rally could continue, given that investors’ concerns about trade conflict and the coronavirus have receded, and valuations are still low by global standards.
“Many people around me are keen to join the party,” Mr. Wang said. “Normally they are terrified of investing in the stock market, but now they are eager to put in 10,000 or 20,000 yuan,” he said, referring to the equivalent of about $1,430 to $2,860. Mr. Wang said his wife previously opposed him buying more stocks, when the Shanghai Composite was trading at a lower level, but she recently started asking if he needed more cash to buy shares.
Tai Hui, chief market strategist for Asia at J.P. Morgan Asset Management, said the wealth effect of surging stocks could encourage more consumer spending, helping underpin the economic recovery.
Despite the recent surge, investors and analysts play down concerns of a bubble.
While officially sanctioned margin loans have topped 1.3 trillion yuan ($186 billion), the highest in almost five years, that still isn’t much more than half the 2015 peak of 2.3 trillion yuan, Wind data shows. The Shanghai Composite’s valuation, at about 15.4 times historical earnings, is also considerably lower than its 2015 peak.
“The markets are not in a big bubble yet,” said Nathan Chow, economist and strategist at DBS Group Research in Hong Kong.
All eyes are on whether China’s economic recovery continues to gather steam in the next two quarters to keep pace with the market surge, Mr. Chow said. “If that happens, no problem, everybody is happy,” he said. Otherwise, sooner or later, a correction will happen, he said.
Economic activity, both in services and manufacturing, picked up pace in June, signaling that the world’s No. 2 economy is starting to recover from the coronavirus shutdowns earlier this year.
Early signs of recovery have also buoyed international investors’ confidence in Chinese stocks, said Mr. Hui at J.P. Morgan Asset Management.
—Zhou Wei contributed to this article.
Write to Chong Koh Ping at chong.kohping@wsj.com and Xie Yu at Yu.Xie@wsj.com
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