Analysts warn of 'double edged sword' in China market rally as investors indulge in frenzied, risky trading

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China's recent stock market rally is raising fears that it's being driven by retail investors indulging in leverage-fueled risky trading which caused a spectacular crash back in 2015.

Analysts say they are monitoring levels of margin trading, or the practice of borrowing money from brokerages to trade.

William Ma, chief investment officer at Chinese asset management firm Noah Holdings, told CNBC on Tuesday that his firm is monitoring margin trading levels among retail investors. "Trend levels is about half of the peak, so we believe the rally will continue. At the same time, we aware that we are only 20% away from peak valuations in recent years," he said.

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