The gauge's 200-day historical volatility has climbed to the highest level since January 2010.

Bank of America Corp recently downgraded its recommendation on Chinese shares to the equivalent of hold from buy, citing signs of "euphoria". Overseas investors sold a net 1.7 billion yuan of stocks via the Shanghai-Hong Kong Stock Connect exchange link in the week through Monday, while the two biggest Hong Kong exchange-traded funds tracking mainland equities had withdrawals of $622 million.

While the momentum can carry on for a while as individual investors chase gains, the market is increasingly diverging from economic reality, said Tom Orlik, a Bloomberg Intelligence economist in Beijing.

China's economic expansion rate slowed to 6.28 percent in February from a year earlier, the weakest since 2009 and below the official target of "about 7 percent" for 2015, Bloomberg's monthly growth tracker showed.

Dual-listed mainland companies traded 36 percent above their equivalent shares in Hong Kong on March 26, the biggest premium since October 2011, according to Bloomberg data.

Stock ownership by individuals is still low, with room to increase as China becomes a more mature market, said Michelle Gibley, the director of international research at United States-based Charles Schwab Corp.

Equities account for 20 percent of financial assets in Chinese households, compared with 45 percent in cash and bank deposits, according to a Charles Schwab survey released in January.

"Chinese domestic investors entering the stock market may be chasing gains, but this occurrence doesn't necessarily indicate a bubble," said Gibley. "That said, valuations of Chinese A-share stocks appear extended relative to H-share stocks and may be due for a breather."

Chinese traders are accustomed to booms and busts, partly because the market is dominated by individuals who may be less committed to long-term equity holdings. The Shanghai Composite surged 353 percent in two years through 2007 before crashing 65 percent the following year.

As long as new investors keep piling in, "it will be good for the market as the bubble expands", Tony Hann, the head of emerging markets at Blackfriars Asset Management Ltd in London, said by e-mail. "But it will surely end in tears."