[SHANGHAI] China's asset management association is calling on mutual fund managers to refrain from speculative trading, highlighting growing concerns of a bubble in China's gravity-defying stock market rally. "Capital markets are significant to China's economic restructuring, but a market's boom and bust would have a negative impact on economic stability," the Asset Management Association of China said in a letter posted on the website, dated June 5.

The letter, from the compliance and risk management committee of the association, urged the mutual funds' industry to promote a "rational and mature investment ideology."

It follows local media publicity on the Chinese mutual fund's role in the surge in Shenzhen's tech-heavy growth board, which has seen the ChiNext index tripling over the past 12 months.

The rapid rally in ChiNext and other key China indexes has stoked concerns of a disorderly correction.

ChiNext is currently trading at an earnings multiple of 143 - a valuation that rivals the tech-heavy Nasdaq in the US at the height of the dotcom frenzy.

The association also cautioned mutual funds managers against investing heavily in a single stock, and said the industry should refrain from blindly following the market trend, or participating in short-term speculative trading.

REUTERS