(Adds details and background) SHANGHAI, June 10 (Reuters) - Two-way volatility in the yuan exchange rate will become normal, and factors influencing the Chinese currency are complicated, the head of China’s foreign exchange regulator said on Thursday. China’s yuan has shown two-way volatility but has been basically stable so far this year, Pan Gongsheng, head of the State Administration of Foreign Exchange (SAFE), said in a speech. The yuan has experienced sharp volatility recently, having gained about 12% against the dollar since May 2020 and hitting its firmest levels in more than three years. Many Chinese policymakers have warned market participants recently against betting on one-sided moves in the currency, and the People’s Bank of China (PBOC) last week raised the reserve requirement ratio on foreign exchange deposits for the first time in 14 years. The FX regulator said companies should avoid “procyclical” and “naked” activities in managing their exchange rate risks, as some were found to have relied on currency mismatch of assets and liabilities to benefit from changes in exchange rates. Pan was referring to companies not hedging their FX trades. “Don’t bet on appreciation or depreciation in the yuan. (People who) always gamble will definitely lose,” Pan said. The SAFE head added that global market valuations were elevated against the backdrop of ultra-loose monetary policy stimulus, and international financial markets could face correction risks from such high levels. Global markets have “detached from economic fundamentals, vulnerability has increased...it could lead to a rise in global risk aversion and changes to cross-border capital flows,” Pan warned. China will expand quotas under the Qualified Domestic Institutional Investor outbound investment scheme, Pan said. Reporting by Winni Zhou and Andrew Galbraith; Editing by Jacqueline Wong Our Standards: The Thomson Reuters Trust Principles.